Thrifts Coup

A bailout plan for S and Ls

It seemed like an idea with little if any future when officials of the U.S. League of Savings Associations first started batting it around earlier this spring. But by last week the prospects for what amounted to a two-year federal bailout of the nation's desperately troubled savings and loan industry had brightened beyond almost anyone's expectations.

Savings banks and S and L institutions are suffering badly from the nation's double-digit interest rates, which have flattened the housing market, savaged the mortgage-lending business and caused upwards of $43 billion to flood out of bank deposits and into higher yielding investments like money-market funds. As a result, the industry has for months been pushing a tax-subsidized savings plan known as the "all-savers" certificate as a way to solve its problems. The proposal has now taken a big step forward with votes by key committees of both the House and Senate to include it in the Reagan Administration's tax bill, which is moving through Congress.

The all-savers certificate would allow savings banks and S and Ls (in one version, commercial banks as well) to pay an interest rate equal to 70% of the going twelve-month Treasury bill rate. The certificates would become available for one year beginning Oct. 1, after which Congress would decide whether or not to renew the program. By some estimates, sales of certificates could reach $200 billion.

The real appeal to savers comes from the plan's tax features. Investors would pay no federal income taxes on the first $1,000 of interest for individuals and $2,000 for married couples filing jointly. Thus at a current Treasury bill rate of 14% on a $10,000 certificate, an investor would receive 9.8% in interest, or $980 tax free. The higher a person's tax bracket, the more attractive the investment becomes.

Congress's lopsided approval of the plan (20 to 0 in the Senate Finance Committee, 29 to 3 in House Ways and Means) was the result of one of the year's most determined lobbying drives. One leader of the blitz was Industry Lobbyist Coley O'Brien, who quarterbacked Notre Dame's 1966 national championship tie game against Michigan State. This time his team included the savings league's 500-member legislative conference of bank executives and its 160-strong Political Action Group.

Contrary to what supporters of the all-savers plan claim, many critics of the concept argue that the certificates will simply deflect savings and investment out of stocks and municipal bonds, force up other interest rates and not actually increase the amount of overall savings by very much.

Treasury officials estimate that the plan, at present interest rates, could cost the Treasury as much as $4.5 billion in lost revenues over the next three years.

Said one of the plan's original co-sponsors in the House, Florida Democrat Sam M. Gibbons, after digesting analyses of its economic impact: "This is one of the worst pieces of legislation I have ever introduced. It does not begin to help all savers at all."

Though the Administration opposes all-savers, blocking it may be difficult. The White House has already agreed not to oppose the Senate Finance Committee version of the President's tax bill, which, except for the all-savers rider, closely tracks the original Reagan tax-cut proposals. Unless the Administration can succeed in getting the all-savers clause deleted when the tax measure comes to a full debate later this summer, subsidized savings may become part of the first tax bill signed into law by this most outspokenly antisubsidy President.

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