To tax or not to tax?
The White House is seriously thinking about pushing for new tax cuts to bring added relief to middle-class families. This strategy stands in stark contrast to the approach taken by the Democratic presidential candidates, all of whom have at one time or another proposed hiking taxes on income, energy and payrolls as well as adding an entirely new tax on wealth.
Several ideas are under consideration in the Oval Office, including White House chief economist Larry Kudlow’s suggestion of a 15 percent income tax rate for the middle class. Another proposal pairs strong political appeal with good economic incentives; it would allow middle-class families to put as much as $10,000 each year into a tax-free savings account.
If young people began to stash away even a few thousand dollars a year tax-free into a simple stock index fund (which rises at the pace of the overall stock market), and kept doing that throughout their working lives, by the time they reach age 70, with average returns they could have $1 million or more.
Our hope is that the Universal Savings Account will cultivate a new ethic of savings and thrift in America that will be good for families and society as a whole. Lord knows that the government, with its more than $23 trillion in debt, isn’t going to provide the prudent level of savings we need.
The left’s proposed remedy to the savings crisis—a crisis that government helped create—is to charge even higher taxes on private savings and make Americans even more reliant on government programs.
Some, such as Sen. Bernie Sanders, want to raise Social Security benefits, but that can only be done by raising the taxes even higher. Sen. Elizabeth Warren, who also favors higher benefits, has proposed a higher capital gains tax rate, new financial transactions taxes, new taxes on your bank and a new annual tax on any investment gains, even if you haven’t sold the asset yet.
As a political matter, it’s hard to make a case against Universal Savings Accounts. Families could tap these accounts, without penalty, to pay for emergency medical expenses, school tuition, starting a new business or buying a home. The plan would add to national savings—not subtract from it, as most government programs do.
Similar accounts have succeeded in promoting saving around the world. The UK and Canada pioneered the model of simple, flexible savings accounts to help people save for their own priorities.
Universal Savings Accounts are a natural fit for Trump’s populist, pro-growth agenda. The rationale for them is simple: Stop taxing Americans for doing something good; instead, help them save.
When you tax something, you get less of it, and the government’s punitive tax treatment of savings is living proof of that adage. With Universal Savings Accounts, we will tax Americans’ savings less, and we will get more of it.