The Treasury Department formally unveiled a proposal yesterday to radically reshape the way Americans save money, consolidating an array of tax-preferred savings plans into three new accounts that would allow families to shelter the earnings on tens of thousands of dollars a year from federal taxes.

In effect, the proposal -- combined with President Bush's plan to slash taxation on investment dividends -- would make capital gains, interest and dividends income tax-free for most Americans. That has been a goal of many tax reformers for decades but has been dismissed politically as far too costly to the Treasury and far too beneficial to the wealthy -- criticisms Democrats raised again yesterday.

Under the plan, the Treasury would establish two new types of account, lifetime savings accounts and retirement savings accounts, each of which would have an annual contribution limit of $7,500 per person. Income limitations that currently prevent many individuals from contributing to tax-free savings plans would be eliminated.

In both types of account, after-tax contributions would be allowed to accumulate interest, capital gains and dividends tax-free, and withdrawals would also go untaxed. Lifetime savings accounts would work like existing special-purpose tax-preferred savings accounts, except that the funds could be withdrawn for any purpose. Existing medical saving accounts and education accounts would not be eliminated, but savers would be encouraged to convert them into lifetime savings accounts.

Contributors to the new retirement savings accounts would have to have earned income, and they could begin withdrawing funds at age 58. Traditional IRAs, in which contributions are tax-deductible for lower- and middle-income workers, could be converted to the new retirement savings accounts or left in place. But contributions could no longer be made to those accounts.

The Treasury also proposed setting up a new employment retirement savings account, which would work like existing 401(k) plans that take pretax contributions and like the retirement savings accounts that take after-tax contributions but allow earnings to accumulate tax-free. Contributions would be capped at $12,000 per person, but the cap would rise to $15,000 by 2006.

In effect, a family of four could shield up to $45,000 a year from investment and interest taxation in the lifetime and retirement savings plans, plus $30,000 in the employer accounts by 2006 for a total of $75,000 a year. A couple contributing $30,000 a year and earning a 7 percent return would shelter $716,000 in investment earnings over 20 years, according to a Democratic Ways and Means Committee analysis.

Treasury officials refused to say how much the proposal would cost the government. In the short run, it would probably bring in more tax dollars as people shifted money from traditional IRAs into the new accounts and would have to pay taxes on the withdrawals.

For the Bush administration, that could prove useful. The 2004 budget, which will be released on Monday, will only project the cost of new initiatives for five years, rather than the customary 10. That means the new savings proposal could appear to cost nothing in the budget, or even could be a revenue booster.

In the long run, the cost could be enormous, congressional Republican and Democratic aides said. Taxes from capital gains, dividends and interest total roughly $160 billion a year, according to calculations by Citizens for Tax Justice, a labor-funded group. The loss of much of that revenue would begin showing up just when the baby boom generation is straining Social Security and Medicare.

Democrats said the proposal is transparently aimed at the rich, who will simply shift existing savings into the new tax-free accounts.

"The president accuses us of engaging in class warfare. Then, at the same time he asks thousands of mid- to lower-income reservists and National Guardsmen to sacrifice by being away from their families and jobs for extended periods of time, he proposes yet another big tax break for the wealthy," said Rep. Charles B. Rangel (N.Y.), the ranking Democrat on the House Ways and Means Committee.

"It's breathtaking," said Sen. Kent Conrad (N.D.), the ranking Democrat on the Senate Budget Committee. "These guys really don't care about the future at all."

Pamela Olson, assistant Treasury secretary for tax policy, defended the proposal. "You know what we can't afford? We can't afford having people not saving for the future," she said.

Olson said the plan would encourage middle- and lower-income workers to save, by removing guesswork and complexity from existing plans. Such workers have resisted putting savings into accounts limited to medical expenses, education costs and retirement funding because of fears that they would need the money for other purposes, she said. By removing withdrawal restrictions, the savings plan will boost savings.

"There's still some distance to go" to a tax system that taxes consumption but leaves investment income untouched, she added. But in moving toward that end, the stated goal of many administration economists in their academic writings before joining the White House, administration officials are clearly moving to tax reforms once considered radical.

"One of the fundamental elements of tax reform is to reduce or eliminate taxes on savings," said Mark Bloomfield, president of the business-backed American Council for Capital Formation. "This is fundamental tax reform."

Democrats scoffed at the administration notion that middle-income workers would have the savings to contribute. Recent research suggests that only between 2.5 and 5 percent of Americans currently are constrained by the $3,000 limit on existing individual retirement accounts and the $12,000 limit on 401(k) plans, said Peter Orzsag, a Brookings Institution economist.

The General Accounting Office recently concluded that raising contribution limits on 401(k) plans directly benefits only 3 percent of participants, and that 84 percent of those benefiting are earning more than $75,000.

Senate Budget Committee Chairman Don Nickles (R-Okla.) signaled some skepticism when he said he favors tax reform measures that tax all kinds of income once and only once. He acknowledged that the new savings plans could exempt large amounts of income from any taxation at all.