[Congressional Record Volume 142, Number 137 (Saturday, September 28, 1996)]
[Extensions of Remarks]
[Pages E1811-E1812]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 A PROPOSAL TO ENHANCE THE FINANCIAL SECURITY OF CHILDREN BY PROVIDING 
    FOR CONTRIBUTIONS BY THE FEDERAL GOVERNMENT TO CHILD RETIREMENT 
                                ACCOUNTS

                                 ______
                                 

                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                       Friday, September 27, 1996

  Mr. HOUGHTON. Mr. Speaker, I am joined today by my colleague, Mrs. 
Kennelly, in introducing legislation, the Children's Financial Security 
Act of 1996, which would establish tax-advantaged savings accounts for 
children. The approach is similar to the current one for individual 
retirement accounts, except that the accounts would be funded by the 
Government with $1,000 annual refundable credits for children from the 
year of birth through age 5--a total of $6,000. The credits would be 
invested in mutual funds that are government approved, but managed by 
the private sector. The credit would be phased-out at the higher income 
levels, e.g. between $100,000 and $150,000 for a married couple filing 
a joint return. The proposal also provides for make-up nondeductible 
contributions by parents for children under 19 at the date of 
enactment.
  Why is the bill being introduced at this time? Hopefully, this can be 
a first step in starting a dialogue for the 105th Congress to address 
the needs of our children for education and retirement--and, at some 
future point, making this proposal part of any privatization of our 
Social Security system. We are concerned, like many others, that we 
must come up with long-term solutions to our government health and 
retirement systems.
  Although this proposal would constitute an entitlement program, still 
it is not openended, as the credit and cost of the government is a 
maximum of $6,000 per child, plus deferral of tax on the earnings 
buildup. Distributions from such an account would be taxable. Also, the 
availability of the credit is phased out to individuals at the higher-
income levels. Most importantly, it could be one leg of a four-legged

[[Page E1812]]

retirement stool, with the others being Social Security (adjusted for 
privatization), private savings and other retirement plans.
  We need to do something to solve the long-term problems of our Social 
Security system. And of course, the crown jewel of this proposal is the 
effect of compounding earnings and contributions over the lifetime of 
an individual. The figures are impressive. For example, with an 
investment return of 10 percent, the $6,000 could grow to $2,350,000 by 
age 65. At 8 percent, the fund would total $740,000. The secret is to 
invest early.
  The funds would be used for retirement purposes--to supplement other 
retirement funds, as well as Social Security benefits. However, funds 
could be withdrawn for education expenses and the purchase of a first-
time home. The current and prior withdrawals could not exceed 50 
percent of the earnings and contributions at the end of the prior year. 
Other nonexcepted withdrawals would be subject to significant 
penalties. The primary purpose is to encourage savings for retirement 
and to discourage withdrawals.
  In summary, the proposal would (a) help to increase our national 
savings rate, (b) instill in individuals the advantages of saving for 
retirement at an early age, and (c) begin to address the very real 
problem of providing alternative options to company pension plans and 
Social Security benefits.
  We welcome our colleagues support of this proposal and look forward 
to their involvement in debating these issues in the 105th Congress.

                          ____________________