    [Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002 Baseline Projections]
    [III. Major Functions of the Federal Government]
    [14.  Income Security]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 163]]

                              14.  INCOME SECURITY

      ----------------------------------------------------------------------

                              Table 14-1.  Federal Resources in Support of Income Security
                                              (Dollar amounts in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Percent
                                    Function 600                                     1993        2001       Change:
                                                                                    Actual     Estimate    1993-2001
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary budget authority............................................     31,918      39,546         24%
      Mandatory outlays.........................................................    175,949     213,012         21%
    Credit Activity:
       Direct loan disbursements................................................         85          20        -76%
       Guaranteed loans.........................................................  ..........         83          NA
    Tax expenditures............................................................     74,150     131,900         78%
    ----------------------------------------------------------------------------------------------------------------
    NA = Not applicable.

      ----------------------------------------------------------------------

    Declining Number of Families in Poverty

      A good indicator of the Nation's state of income security is the
    poverty rate. Since passage of the Clinton-Gore Administration's
    economic plan in 1993, the poverty rate has declined from 15.1 percent
    in 1993 to 11.8 percent in 1999, a rate lower than any other year in the
    1980s or 1990s. Furthermore, poverty among those aged 65 or older in
    1999 was at an all-time low of 9.7 percent; and poverty among children
    in families declined from 22 percent in 1993, a height last seen in the
    mid-1960s, to 16.3 percent in 1999, lower than any other level in the
    1980s or 1990s. Also noteworthy is that the 1999 poverty rate of black
    children, while still a high 32.7 percent, was the lowest level ever
    measured.
      These improvements have been driven by an historic economic recovery
    and landmark legislation designed to move families from welfare to work
    by making work pay and providing support to low-income working families.
    As evidence of this legislation's success, less than five percent of
    families with children did not work in 1999, compared to nine percent in
    1993. Furthermore, the poverty rate among working families with children
    declined from 12.6 percent in 1993 to 11 percent in 1999.

      Earned Income Tax Credit: The decline in poverty among working
    families tells only part of the story. As the growing economy increased
    employment opportunity, expansions to the Earned Income Tax Credit
    (EITC) in 1993 were making work pay. The Administration's 1993 expansion
    increased benefits significantly for those with two or more children,
    and allowed workers who live with their children at least half of the
    tax year to claim a credit. As a result of these expansions, credits
    paid through the EITC program increased from $15.5 billion in 1993 to
    nearly $31 billion in 1999, and the number of families receiving
    assistance from the program increased by a quarter, from 15 million to
    19 million.
      The EITC also has been effective in attracting more workers to the
    labor market. One study estimates that the EITC alone was responsible
    for 34 percent of the increase in annual employment of single mothers
    from 1992 to 1996.

    Ending Welfare as We Know It

      Even before the 1996 welfare reform legislation, many States were well
    on their way to changing their welfare programs to jobs programs. By
    granting Federal waivers, the Administration allowed 43 States--more
    than all previous Administrations combined--to

    [[Page 164]]

    require work, time-limit assistance, improve child support enforcement,
    and/or encourage parental responsibility. The vast majority of States
    have chosen to build on their welfare demonstration projects approved by
    the Administration in their implementation of welfare reform.
      In 1996, the President signed the Personal Responsibility and Work
    Opportunity Reconciliation Act (PRWORA), a bipartisan welfare plan that
    has dramatically changed the Nation's welfare system. The law replaced
    the Aid to Families with Dependent Children program with the Temporary
    Assistance for Needy Families (TANF) program, which provides $16.7
    billion annually in block grants to the States. The law contains strong
    work requirements, time limits on assistance, performance bonuses to
    reward States for moving welfare recipients into jobs and reducing out-
    of-wedlock births, State maintenance-of-effort requirements,
    comprehensive child support enforcement, and supports for families
    moving from welfare to work including increased funding for child care.
    State strategies are making a difference in the success of welfare
    reform, specifically in job placement, child care, and transportation.

      Cash Assistance: Since January 1993, the welfare rolls have fallen by
    nearly 60 percent--from 14.1 million to 5.8 million--resulting in the
    fewest number of people on welfare since 1968. The percent of Americans
    on welfare is now at 2.1 percent, the lowest level since 1963. In August
    1999, the Council of Economic Advisers (CEA) reported that the single
    most important factor contributing to this historic decline is the
    implementation of welfare reform. Of the caseload reduction from 1996 to
    1998, the CEA estimated that approximately one-third was due to Federal
    and State policy changes resulting from welfare reform and about 10
    percent was due to the strong economy.
      Employment: At President Clinton's insistence, the 1996 welfare reform
    legislation included both rewards and penalties to encourage States to
    place people in jobs. According to reports filed by 46 States, more than
    1.2 million welfare recipients nationwide went to work in just the one-
    year period between October 1998 and September 1999. Retention rates
    also were promising: 78 percent of those who got jobs were still working
    three months later. States also reported an average earnings increase of
    31 percent for former welfare recipients, from $2,027 in the first
    quarter of employment to $2,647 in the third quarter.
      The first three years of data on work activity since welfare reform
    also show that all States met the law's work participation requirements
    for overall work activity levels. Nationally, 38 percent of all welfare
    recipients were working or in work-related activities in 1999. The data
    also show that nationwide, the percentage of welfare recipients working
    has increased to nearly five times the level it was when the President
    took office, rising from seven percent in 1992 to an all-time high of 33
    percent in 1999. The vast majority of working recipients are in paid
    employment, with the remainder involved in community service or
    subsidized employment.

      Welfare-to-Work Grants: Because of the President's leadership, the
    1997 Balanced Budget Act included $3 billion over 1998 and 1999 for
    Welfare-to-Work grants to help States and local communities move long-
    term welfare recipients and certain noncustodial parents into lasting,
    unsubsidized jobs. Funds can be used for job creation, job placement and
    job retention efforts, including wage subsidies to private employers and
    other critical post-employment support services. The Department of Labor
    provides oversight, but most of the dollars are placed through local
    business-led boards into the hands of those who are on the front lines
    of the welfare reform effort. For 1998 and 1999, the Administration
    awarded 190 competitive grants that support innovative local strategies
    to help noncustodial parents and individuals with limited English
    proficiency, disabilities, substance abuse problems, or a history of
    domestic violence get and keep employment. This program also is
    discussed in Chapter 11, ``Education, Training, Employment, and Social
    Services.''
      Welfare Recipient Hiring: The Welfare-to-Work Tax Credit, enacted in
    the Taxpayer Relief Act of 1997, offers employers a tax credit equal to
    35 percent of the first $10,000 in wages in the first year of
    employment, and 50 percent of the first $10,000 in wages in the second
    year for a total credit of up to

    [[Page 165]]

    $8,500 for each welfare recipient hired and retained. This credit
    complements the Work Opportunity Tax Credit, which offers a credit of up
    to $2,400 for the first year of wages for eight groups of job seekers.
    From 1997 to 2000, employers were eligible to claim these tax credits
    for over 1.4 million newly-employed welfare recipients and other
    disadvantaged individuals. Both credits are currently available through
    December 2001. These credits also are discussed in Chapter 11.
      In addition, at the President's urging, the Welfare to Work
    Partnership was launched in May 1997 to lead the national business
    effort to hire people from the welfare rolls. The Partnership began with
    105 participating businesses, and has now grown to more than 20,000
    businesses of all sizes and industries. Since 1997, these businesses
    have hired an estimated 1.1 million welfare recipients, surpassing the
    challenge the President set in May 1998. In addition, the Small Business
    Administration is addressing the unique and vital role of small
    businesses that employ over half of the private work force, by helping
    small businesses throughout the country connect with job training
    organizations and job-ready welfare recipients. Federal agencies also
    have played a role and have hired nearly 50,000 welfare recipients.

      Teen Pregnancy Prevention: Significant components of the President's
    comprehensive effort to reduce teen pregnancy became law when the
    President signed the welfare reform legislation. PRWORA requires
    unmarried minor parents to stay in school and live at home or in a
    supervised setting; encourages ``second chance homes'' to provide teen
    parents with the skills and support they need; and provides $50 million
    a year for five years in new funding for State abstinence education
    activities. Data show that teen birth rates have declined nationwide by
    20 percent from 1991 to 1999, and are now at the lowest rate on record
    since tracking began 60 years ago. These improvements are seen among
    younger and older teens, married and unmarried teens, all States and all
    ethnic and racial groups.
      Rewards for High Performing States: The 1996 welfare reform
    legislation included $200 million annually for awards to States that
    perform especially well in achieving the goals of TANF and $100 million
    for States that reduce out-of-wedlock births. In December 1999, the
    President announced that 27 States were awarded the first high
    performance bonuses to reward superior results or improvement in moving
    people from welfare to work. A year later, 28 States received the second
    round of awards. Each year, the $200 million in bonuses went to the top
    10 States with the best records in each of four categories related to
    moving parents on welfare into jobs and their success in the work force.
      Through regulations to award future high performance bonuses, the
    Administration also has put in place new incentives for States to
    provide programs that help working families succeed and encourage the
    formation of two-parent families. The final regulation retains the
    original job entry and success in the work force measures, and adds
    measures for participation in Medicaid and the State Children's Health
    Insurance Program (SCHIP), participation in the Food Stamp program,
    receipt of child care subsidies by eligible families, and family
    formation and stability. These new measures will ensure that welfare
    reform will continue to move millions of families from dependence to
    independence by encouraging work, supporting working families to help
    them succeed and stay off welfare, and increasing the number of children
    living with married parents. A total of $140 million in bonus funds is
    available annually for the work measures, with $60 million available for
    the work support and family formation measures.
      In 1999 and 2000, HHS awarded bonuses of $20 million to each of four
    States and the District of Columbia for achieving the Nation's largest
    decreases in out-of-wedlock births. These bonuses were awarded under the
    welfare reform law, which provided $100 million annually for up to five
    States with the largest reductions in the proportion of out-of-wedlock
    births that also show decreases in their abortion rates. Nationwide, the
    1999 birth rate for unmarried women was six percent lower than its high
    in 1994, and three percent lower than in 1992.

    [[Page 166]]

    Creating Comprehensive Support for Working Families

      Child Care: The number of children with parents who work outside of
    the home is higher than ever before and child care expenses are often
    the second or third largest item in a low-income working family's
    household budget. The 1996 welfare reform law increased child care
    funding by $4 billion over six years to provide child care assistance to
    families moving off welfare and to other low-income families. The
    Administration also secured additional discretionary funds for subsidies
    and quality enhancement, which were major components of its
    comprehensive child care initiative to address the struggles our
    Nation's working parents face in finding child care they can afford,
    trust and rely on and that will help to prepare their children for
    success in school.
      An important element of that initiative was to increase the
    availability of child care subsidies. The Child Care and Development
    Fund (CCDF) provides grants to States to subsidize and improve the
    quality of care for low- and moderate-income children. Under this
    Administration, Federal funding for child care subsidies has more than
    doubled, increasing from $1.8 billion in 1993 to an estimated $4.4
    billion in 2001. In 2001, the discretionary contribution to the CCDF
    increased by $817 million, bringing total discretionary child care
    spending to $2 billion and allowing the program to serve nearly 150,000
    additional children. Combined with the child care funds provided in
    welfare reform, the new discretionary funds will enable the program to
    serve over 2.1 million children monthly in 2001.

      Child Support: An important component of the Administration's policies
    to help working families is to ensure that unmarried parents receive the
    support they are entitled to under the law from noncustodial parents.
    The 1996 welfare reform law included significant provisions to
    strengthen child support enforcement. Among other changes, the
    legislation streamlined paternity establishment procedures, provided for
    State and Federal registries of newly hired employees, established
    statewide support collection and distribution centers, and initiated
    tough new penalties when child support obligations are not met. In
    addition, in 1998, the President signed legislation enacting tougher
    penalties for parents who repeatedly fail to support children living in
    another State or who flee across State lines. Today, parents who owe
    child support can have their wages garnisheed, their bank accounts
    seized, their Federal loans denied, and their tax refunds withheld to
    help make up what they owe.
      Since the Administration took office, child support collections have
    doubled from $9 billion in 1993 to $18 billion in 2000. The number of
    fathers taking responsibility for their children by establishing
    paternity rose to a record 1.5 million in 1999 (the most recent data
    available), nearly triple the 1993 figure of 554,000. In addition, a new
    program established under PRWORA has identified nearly 900,000
    delinquent parents with accounts valued at $3 billion. In 2001, net
    Federal costs for child support will be an estimated $2.4 billion.
      Child support is an important source of income for poor children. One
    study estimates that in 1997, child support lifted a half million
    children out of poverty, and that for poor children who receive child
    support, it represents, on average, over one-quarter of their family's
    income.

      Individual Development Accounts (IDAs): In 1992 during his campaign,
    the President proposed Individual Development Accounts (IDAs) as a way
    to empower low-income families to save for a first home, a post-
    secondary education, or to start a new business. The 1996 welfare reform
    law authorized the use of TANF grants to create IDAs. In addition, in
    1998 the President signed legislation creating a five-year $125 million
    demonstration program. Households that are eligible for TANF, qualify
    for the EITC, or have incomes below 200 percent of the Federal
    guidelines, and have a net worth below $10,000 are eligible to
    participate in the demonstration. In 1999 and 2000, the Department of
    Health and Human Services awarded nearly $20 million to 65 grantees that
    will establish over 16,000 savings accounts for low-income workers. The
    2001 Budget included $25 million for IDAs to create over 20,500 new
    accounts.
      Food Stamps: As parents leave welfare for work, their continued access
    to nutritional as

    [[Page 167]]

    sistance is a critical factor in making the transition to self-
    sufficiency. It is also important that States reach out to low-income
    working families who may be eligible for food stamps since the
    assistance could keep them off welfare. In 1993, the food stamp program
    assisted nearly 27 million individuals at a cost of $23.6 billion. Both
    participation and funding have declined dramatically since then due to
    the strong economy, the success of moving people from welfare to work,
    changes in eligibility rules, and other consequences of welfare reform.
    In 2001, food stamps is expected to serve approximately 17.5 million
    people at a cost of $19.6 billion.
      The Administration has taken a number of actions to simplify program
    administration for States, make the program more workable and easier for
    low-income working families to navigate, provide guidance to States on
    what their responsibilities are and how to improve practices, and use
    bonuses and sanctions to hold States accountable. In 1999 and 2000 the
    President took executive actions to help ensure working families who
    need food stamps have access, including: regulations to provide for
    transitional food stamp benefits for 3,000 individuals leaving TANF in
    2001, with 20,000 individuals receiving assistance when fully
    implemented; longer reporting cycles for almost 200,000 individuals in
    2001, with four million individuals benefitting when fully implemented;
    reviews of State processes to ensure that States comply with program
    rules; a public education campaign; and new steps that allow States to
    reinvest liabilities incurred due to high payment error rates in
    activities that improve access. In addition, a regulatory action making
    it easier for some recipients to own a car and still receive food stamps
    followed by legislation proposed by the Administration permitting States
    to use more generous TANF rules for vehicles when determining food stamp
    eligibility, in combination, will benefit 76,000 individuals in 2001,
    and when fully implemented, will benefit nearly 460,000 individuals,
    most of whom live in working families with children.

      Special Supplemental Nutrition Program for Women, Infants, and
    Children (WIC): WIC provides vouchers for nutritious supplemental food
    packages, nutrition education and counseling, and health and
    immunization referrals to low-income women, infants, and children.
    During this Administration, funding has grown by over 40 percent to over
    $4 billion, and the program now helps nearly half of all infants. In
    2000, approximately 7.2 million individuals participated in the program
    monthly and funding for 2001 is sufficient to support participation by
    just over 7.3 million people.
      Income Assistance to Aged, Blind and Disabled Individuals: The
    Supplemental Security Income (SSI) program, administered by the Social
    Security Administration (SSA), provides benefits to needy aged, blind,
    and disabled adults and children. On average in 2000, 6.3 million
    individuals received Federal SSI benefits on a monthly basis. These
    benefits totaled $31 billion in 2000. SSI uses the same disability
    eligibility criteria as the Social Security Disability Insurance
    Program. Policies affecting both programs are discussed in Chapter 15,
    ``Social Security.''
      SSI Children: The 1996 PRWORA legislation created new eligibility
    criteria for children to receive SSI to ensure that only needy children
    with severe disabilities received benefits. Between 1990 and 1996, the
    number of children eligible for SSI benefits more than tripled from
    approximately 309,000 to more than 955,000. This growth was due, in
    part, to the difficulty in determining whether a child's impairment was
    of comparable severity to an impairment that would disable an adult.
    PRWORA eliminated this somewhat broader standard, and created a new
    definition of childhood disability that states a child's impairment, or
    combination of impairments, is considered disabling if it causes marked
    and severe functional limitations.
      In February 1997, SSA published final interim rules that applied the
    new definition of disability to applicants as well as 288,000 child
    beneficiaries, approximately 100,000 of whom would ultimately lose
    coverage. To ease the transition for the families of these children, an
    Administration proposal was enacted to continue Medicaid coverage to
    children who lost their SSI benefits as a result of PRWORA. SSA has
    since identified ways to clarify the rules and simplify the processes.
    The final regulations went into effect on January 2, 2001.

    [[Page 168]]

      Unemployment Compensation: Unemployment compensation, overseen by the
    Department of Labor's Employment and Training Administration, provides
    benefits to individuals who are temporarily out of work through no fault
    of their own and whose employer has previously paid payroll taxes to the
    program. State payroll taxes finance the basic benefits paid out of a
    dedicated trust fund. States set benefit levels and eligibility
    criteria; benefits are not means-tested and are taxable. Regular
    benefits are typically available for up to 26 weeks of unemployment.
    Additional benefits are often provided when unemployment is high and
    rising.
      Spending on the unemployment compensation program varies based on
    economic conditions and demonstrates the Administration's success in
    achieving economic growth and low unemployment. In 1993, the
    unemployment rate was seven percent, and total spending on those
    benefits exceeded $36 billion. By 2000, as a result of the strong
    economy and the wide availability of jobs, the unemployment rate was
    four percent and total spending on those benefits was less than $22
    billion--a decrease of almost 40 percent since 1993.
      President Clinton worked to improve access to unemployment
    compensation to help new parents afford family leave. A Department of
    Labor regulation, effective in August 2000, allows States to create
    experimental birth and adoption unemployment compensation programs that
    provide partial wage replacement for parents caring for newborns and
    newly adopted children.

    Addressing the Gaps in Welfare Reform

      Restoration of Benefits for Legal Immigrants: The Administration
    believes that legal immigrants should have the same economic
    opportunity, and bear the same responsibility, as other members of
    society. Upon signing the 1996 PRWORA law, the President pledged to work
    toward reversing the cuts in benefits to legal immigrants that were
    unrelated to the goal of moving people from welfare to work. Since that
    time, the President's leadership has resulted in significant benefit
    restorations for immigrants.
      More than half a million noncitizens would have been affected by
    PRWORA's Supplemental Security Income (SSI) eligibility restrictions in
    2003. Legislation enacted after PRWORA restored eligibility to about
    three quarters of these individuals. The Balanced Budget Act of 1997 and
    the Noncitizens' Benefit Clarification and Other Technical Amendments
    Act of 1998 provided $11.5 billion over five years to restore Medicaid
    and SSI to 380,000 disabled and elderly legal immigrants who were living
    in the U.S. when the welfare law was enacted on August 22, 1996. These
    restorations provided critical assistance to legal immigrants who were
    unable to work to support themselves.
      PRWORA also made most immigrants ineligible for food stamps, an
    important source of nutrition assistance for many working families, as
    well as for those unable to work. PRWORA would have denied food stamp
    eligibility to almost 600,000 noncitizens in 2002. Legislation enacted
    after PRWORA restored eligibility to approximately 30 percent of these
    individuals. In response to the Administration's request, the
    Agricultural Research, Extension, and Education Reform Act of 1998
    included $818 million over five years to restore food stamp benefits to
    an estimated 175,000 elderly, disabled, and other needy immigrants,
    including 45,000 children who lawfully resided in the United States as
    of August 22, 1996.
      These accomplishments restored important nutrition and income security
    protections to large categories of vulnerable noncitizens. Nevertheless,
    most noncitizen adults (except for refugees and certain other special
    categories of immigrants) are ineligible for food stamps unless and
    until they acquire 40 quarters of employment coverage, even if they have
    been in the U.S. since before enactment of PRWORA. With regard to SSI,
    similar restrictions apply to most noncitizens entering the U.S. after
    August 22, 1996. Immigrants entering the U.S. after that date also are
    banned from Medicaid until they have been in the United States at least
    five years, a provision that is expected to affect 430,000 immigrants in
    2003.

    [[Page 169]]

    Employee Retirement Benefits

      Federal Employee Retirement Benefits: The Civil Service Retirement
    System (CSRS) and the Federal Employees' Retirement System (FERS)
    provide pension coverage for approximately 2.7 million active employees,
    and pay out benefits to about 2.4 million retired employees and
    survivors. Both systems provide a defined benefit pension. FERS
    employees (those hired since January 1, 1984) are also covered by Social
    Security and a defined contribution plan--the Thrift Savings Plan (TSP).
    CSRS employees may contribute to TSP but do not receive the automatic
    and matching agency contributions enjoyed by FERS enrollees. Since 1993,
    the number of annuitants (retired employees and survivors) has grown by
    10 percent, from 2.2 million to 2.4 million, and the annuity payments
    have increased by over one-third, from $35 billion to $47 billion.
      Over the past eight years, the service provided to this growing
    customer population has improved markedly. For example, in 1993 there
    was no self-servicing of customer service requests. This has increased
    to over 30 percent today. This improved service is being delivered more
    efficiently. For example, with fewer staff, processing times for annuity
    claims have been reduced substantially. This better and more efficient
    service is reflected in customer satisfaction surveys, which show an
    improvement from around 80 percent in 1993 to well over 90 percent today
    in annuitant satisfaction with the handling of service requests. Other
    notable accomplishments since 1993 include preserving the benefits
    structure during an extremely tight budgetary environment, providing
    through legislative action a more equitable treatment of employees
    placed in the wrong retirement system, and creating a greater incentive
    for employees to save by enabling them to contribute to the TSP
    immediately upon being hired.

      Private Pensions: The Department of Labor's Pension Benefit Guaranty
    Corporation (PBGC) insures against company bankruptcy the pensions of
    about 42 million workers and retirees who earn defined benefit pensions.
    Before 1992, PBGC's books could not be audited. Worse, PBGC had for many
    years run an accounting deficit; that is, each year its liabilities had
    exceeded its assets. After well-publicized bankruptcies in the airline
    and steel industries, PBGC had for some years been talked of as the next
    savings and loan crisis.
      That situation has turned around. With improved internal controls,
    PBGC has received ``clean'' audit opinions since 1993. Primarily due to
    the Administration's 1994 law (the Pension Protection Act) that
    increased PBGC revenues and also due to improved economic conditions and
    fewer bankruptcies, PBGC has been running annual surpluses and is
    predicted to end 2001 at $9 billion in the black. With its finances
    stabilized, PBGC is improving customer service. PBGC is working to
    shorten the time to calculate final benefit levels from six years in
    1997 to three years in 2002. (Retirees are getting approximate pensions
    while PBGC is setting final benefit levels.)
      Also at the Department of Labor, the Pension and Welfare Benefits
    Administration (PWBA) establishes and enforces safeguards to protect the
    roughly $4 trillion in private pension assets. More than 90 million
    participants and beneficiaries are now in private pension plans.
      PWBA is working to recover more benefits through customer assistance--
    an estimated $54 million for 2001 compared to $15 million in 1995.
    During this period PWBA corrected prohibited transactions and recovered
    or protected plan assets totaling more than $1 billion. At the same
    time, PWBA is more speedily processing the exemptions that allow certain
    financial transactions that are needed by pension plans, reducing the
    time taken to 200 days in 2001, a 17 percent improvement from the 1999
    average of 242 days. PWBA has, moreover, simplified the annual report
    (the Form 5500) filed by companies that sponsor pensions. PWBA has also
    sped the processing of this data, in order to move more quickly to
    protect pensions and to keep participants better informed about their
    pension assets.

      Tax Incentives for Retirement Savings: The Federal Government
    encourages retirement savings by providing income tax benefits to both
    individuals and companies. These tax benefits have been expanded and
    also simplified so that more companies can offer

    [[Page 170]]

    pensions. The Administration developed the new SIMPLE pensions (Savings
    Incentive Match Plans for Employees), which is an easy way for companies
    to set up 401(k)-like retirement accounts for their workers. Generally,
    earnings devoted to workplace pension plans and to many traditional IRAs
    receive beneficial tax treatment in the year earned and ordinarily are
    taxed only in retirement, when lower tax rates usually prevail.
    Moreover, taxpayers can defer taxes on the interest and on the other
    gains that add value to these retirement accounts. The new Roth
    Individual Retirement Accounts (IRAs) however, allow contributions to be
    made from after-tax earnings, but account earnings are free from tax
    when used in retirement, which is a novel tax benefit.
      President Clinton also signed into law expanded eligibility for
    deductible IRAs. So that more middle-income taxpayers with workplace
    retirement plans could open the valuable deductible IRAs, the Taxpayer
    Relief Act of 1997 generally doubled, over time, the income limits for
    participation. Previously, single taxpayers with adjusted gross incomes
    below $25,000 could open full deductible IRAs, with the maximum size of
    the IRA phasing out until the income limit of $35,000 was reached.
    Married taxpayers with joint returns were eligible at higher income
    levels, with a phase-out range of $40,000 to $50,000. Under the new law,
    the IRA phase-out ranges increase until the eligibility limits are
    $50,000 to $60,000 for single taxpayers (2005 and thereafter) and
    $80,000 to $100,000 for couples filing jointly (2007 and afterwards).
    This law also greatly expanded (to $150,000 to $160,000) the deductible
    IRA income limit for taxpayers not in workplace retirement plans but
    whose spouses are. Another law increased the maximum size of spousal
    IRAs for non-working spouses.
      Additionally, President Clinton succeeded in making IRAs more flexible
    through legislation enacted in the Health Insurance and Portability and
    Accountability Act of 1996. That law allows the long-term unemployed to
    make penalty-free withdrawals from IRAs in order to pay their health
    insurance premiums and also for large medical expenses.
      All the pension and retirement-saving tax incentives amount to an
    estimated $115 billion in 2001--decidedly the largest set of preferences
    in the income tax system--and nearly double the amount in 1993. Total
    tax expenditures included in this function have increased from $74
    billion in 1993 to an estimated $132 billion in 2001.