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Group is formed to lobby for IRA deduction. (individual retirement accounts)

American Banker May 23, 1986 | Sudo, Philip T.

Group Is Formed to Lobby for IRA Deduction John Klug understands the American Way: If you want something done, do it through a lobbyist.

Mr. Klug, the president of the Continental Communications Group Inc., opposes the Senate’s proposal to eliminate the individual retirement account tax deduction for people covered by existing pension plans.

He admits that he has a strong economic interest in the matter–his Denver-based firm publishes newsletters for financial institutions on the subject of individual retirement accounts.

But with so many financial institutions –not to mention taxpayers– likely to suffer from the proposed change, Mr. Klug says he figured that the American Bankers Association and the U.S. League for Savings Institutions would take the lead in lobbying against the measure. web site citibanks ignon

“I found out the traditional lobbies were not going to do anything,’ he says. “That was a shocking finding.’ In Mr. Klug’s view, the ABA and U.S. League have taken a low-profile on the tax package because their influential members like the proposed 0.6% loan-loss reserve deduction. Lobbying to retain the IRA tax deduction “would just muddy the waters for them,’ he says.

The Securities Industry Association, meanwhile, has chosen to focus its lobbying efforts on retaining the special tax status for capital gains, which the Senate proposes to treat as ordinary income.

After hearing what he calls “tremendous disaffection for what the ABA and league are doing’ from his clients, Mr. Klug formed the Coalition for Retirement Security, a lobbying group that plans to work with the Investment Company Institute and National Taxpayers Union to preserve an IRA contribution incentive.

The coalition will share data and attempt to coordinate strategy with the other organizations, he says.

“There’s a need to broaden the [lobbying] base so that Congress knows it’s not a narrow, partisan concern,’ he says. “It makes it a more powerful, credible force.’ Ironically, Mr. Klug says, when taken as a whole, “we support the bill very much.’ He says he does not believe that amending the IRA section would affect the fragile structure of the bill. go to web site citibanks ignon

“That’s the fear, and the fear is perhaps overstated,’ he says. “Obviously, you do not want this thing amended to death, but I think leadership is aware that this is the one issue that might have as broad a base of support as the mortgage interest deduction and the state and local tax deduction.’ (On Thursday, Rep. Thomas Downey, D-N.Y. and a member of the House Ways and Means Committee, told a meeting of the New York State Society of Certified Public Accountants that Ways and Means Committee Chairman Dan Rostenkowski had promised that “neither he nor the House of Representatives will budge from full support of the current deduction of IRAs.’) At present, it appears that Senate leaders will work toward an amendment that would originate from the Senate Finance Committee, which hashed out the current reform package.

“That’s the direction everybody’s working on,’ Mr. Klug says. “It’s more orderly and a safer way to bring it to the floor.’ In the coalition’s view, the two main justifications for eliminating the IRA deduction are both flawed, he says.

The Finance Committee contended that IRAs are a tax shelter used primarily by the affluent, a contention many data have supported. “I have no problem with that argument,’ Mr. Klug says, “but that would have been mitigated by efforts that are going on now to broaden the base of contributors and get beyond the [30% to 35%] participation barrier by going after the moderate-income people.’ The committee also argued that IRAs did not represent new savings, which the accounts were designed to promote. “But the fact they’re overlooking is that money is locked in,’ Mr. Klug says. “Over time, that money would not have been “hot’ money; it would have been “cold’ money; it would have sat there. The proof of that will be if they eliminate the deduction. Nobody’s going to pull their money out. It will still be there.’ When asked what the effect on his business would be if the proposal passed as is, he said, “In the short run, it will be a bonanza. The proposed effective date is Jan. 1, 1987. There would be a melee of ads, promos, and newsletters by everybody, trying to get their contributions in.’ Whether the coalition’s lobbying effort is successful or not, Mr. Klug predicts, the banking industry will face a public outcry if it fails to lobby vigorously for the IRA deduction.

“Privately, a lot of clients tell me they are extremely perturbed that the ABA would sacrifice IRAs on the altar of tax reform for an 0.6% loan-loss reserve deduction,’ he says. “It’s probably going to benefit the Citibanks, Manny Hannys, and Southwest Banks, but not the majority of the industry.

“My feeling is that when the public finds out what the large banks have done, after selling them on the idea of the IRA and retirement security, there’s going to be a terrible backlash.’ Sudo, Philip T.