Politics

Why We Shouldn’t Tax Savings as the Left Proposes

tax taxesThe 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 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% 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.

This would address a financial trend that almost everyone agrees is troubling. Americans aren’t squirreling away enough money for a rainy day. One recent survey found that more than half of Americans have less than $1,000 in a savings account, not counting retirement plans like 401(k)s.

Although the first Trump tax cut raised savings rates for families, helping them build bigger nest eggs would give them better protection.

One factor contributing to the shortage of savings for many millions of households is that savings are typically taxed twice: first when the money is put into the account and then again on the interest or capital gain when the money is taken out.

The double taxation provides a greater incentive to spend, rather than save. This punitive treatment of savings leaves Americans more vulnerable to economic downturns and more dependent on federal programs.

Universal savings accounts create the opposite incentive, empowering Americans to expand their nest egg. These simple, flexible accounts would allow every American to save more for the future, and the growth on the savings would be tax-free. They offer a way to fully tap into what Albert Einstein once called the most powerful force in the universe: compound interest.

If young Americans 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 reached age 70, with average returns they could have $1 million or more.

Current high payroll taxes on workers and underfunded entitlement benefits reduce the opportunities and incentives for lower income and middle class families to build their own reserves.

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 itself 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, I-Vt., want to raise Social Security benefits, but that can be done only by raising the taxes even higher.

Sen. Elizabeth Warren, D-Mass., 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, as most government spending programs do.

Similar savings incentives have proved popular in the past. IRAs and 401(k) plans have been successful savings vehicles. But universal accounts have even greater appeal and reach. These new savings plans would not include all the restrictions on when you can use the money and penalties for accessing the funds early.

Similar accounts have succeeded in promoting saving around the world. The U.K. and Canada pioneered the model of simple, flexible savings accounts to help people save for their own priorities.

Fully 40% of all households in Canada have saved money in these accounts, and more than half of those households are low-income savers. In Britain, 43% of adults hold an account and similar to Canada, 52% of account holders earn less than about $26,000 a year.

Universal savings accounts are a natural fit for President Donald 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.

Reprinted with permission from - The Daily Signal - by Adam Michel and Stephen Moore

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Frustrated
7 months ago

Wow. GET EVERYONE YOU KNOW—INCLUDING CHILDREN AND YOUNG ADULTS—ESPECIALLY THEM!—TO READ AND UNDERSTAND THIS ARTICLE!!!!!!! The next election will either destroy or save their financial future and their ability to take care of themselves! Very few people in America understand this!

Morty Tupperman
7 months ago

Re: taxing savings accounts: “This punitive treatment of savings leaves Americans more vulnerable to economic downturns and more dependent on federal programs.” reads the above article. Precisely what the Socialist Democrats want – more Americans dependent on the government. Do I hear Liiz and Bernie saying, “It’s not YOUR money” yet?

LTC S
7 months ago

A benefit isn’t a benefit if you’re going to take part of it away in taxes.
You can raise the benefits of millions of seniors by simply not taxing social security. We already paid taxes on it once, why is it taxed again? You can also help seniors by raising their taxable income base in relation to their age. By just letting us old people keep the little retirement and Social security we get would greatly improve our life.

Sherry
7 months ago

I’m tired of the government trying to fix their financial problems by raising taxes on the USA citizens. Just cut back on the tremendous salaries of senators, congressmen etc. to a more reasonable amount. Also, term limits need to be put in place and then they have to go to work when their term expires. It ridiculous for the American citizens to continue paying their salaries when they are no longer employed with government. They think the social security that’s taking out or our pay checks is a privilege and not our right. The government took our social security monies… Read more »

Patriot Will
7 months ago

Taxing savings is actually a form of robbery. Why should one have to keep on paying taxes on monies that have already been taxed? Savings are not earnings, and only a person with poor thinking skills would not recognize the strong difference.

Stephen Russell
7 months ago

No, cut DC waste alone A-Z ( see CAGW.org) Cut House salaries & force them into Medicare & SS etc make=

John Karkalis
7 months ago

This should be no surprise to Amac members.
How else will the collectivist Dems pay for their “utopian” paradise?
Bernie et al have never seen honestly earned resources that they gleefully would not tax.
Penalizing frugal, conscientious savers for being frugal and conscientious is just plain nuts!
As my politically gifted cat, Louie, has said numerous times. “Bernie is completely stoned or clueless or both. “

Glenn Lego
7 months ago

With taxes on savings accounts, why would anyone want to do anything other than live paycheck to paycheck or perhaps hide their money under the mattress?

Barbara Lynch
7 months ago

I don’t know why we have to pay taxes on interest we get with our savings account. We already paid taxes on that money. And they want you to declare every penny, so if you make $5.00 in interest on a saving account then you have to write it off. I really don’t think so. How about going after people that really owe money oh say Like Al Sharpton and all the rest of his minions.

Judy
7 months ago

Never trust a democrat. Their only purpose is to raise your taxes (steal your money) so they can give it to people who will vote for them.

JerryH
7 months ago

The best interest rates to be had today can only be found at a few online banks, and those rates hover around 1.75%. Most brick and mortar banks, S&Ls, and credit unions do well to pay 0.05% interest. Adding a tax would only further discourage young people from saving, as they would rightfully ask, “what’s the point?” The likes of Bernie, Elizabeth, and other socialists never understand that people lose all incentive to work when they do not see the fruits of their labor. Promises of free education for all and free healthcare quickly sour when these government programs collapse… Read more »

tony d willIiams
7 months ago

If our government can make it useful to save for a rainy day or retirement without being punished for forethought and future planning, this would be good. It would make the stress levels lower and put mattresses out of the savings business. Remember there is no free lunch, somebody has to pay. The democrats will raise taxes and punish you so they may enjoy excessive wages, great health-care and COLA while we are denied the same. Compound taxing causes the loss of monies. If I get taxed on my savings at a greater rate than the given interest rate, then… Read more »

Barbara J Struble
7 months ago

Income tax is unconstitutional. Get rid of it and the IRS. Prosecute IRS for terrorizing us per the white kenyan illegal alien’s do-do.

Diana
7 months ago

We need another tax cut and that includes making it law never to tax Social Security, it is double taxation, and those making under $100,000. A year need a tax break, plus those with dividends that are under say $500,000. Worth Should not have to pay taxes, on them , can go a little lower but that is very little compared to those that own Thousands of dividends, it seems it is always those who make less pay more that’s not right, and as far as the State of the Union it was the very first one I watched in… Read more »

toprudder
7 months ago

We already have a ROTH IRA which allows you to put taxed wages into the account, but then there is no further taxation on the interest it earns (meager though the interest is ever since 9-11-01 so most have taken on the additional risk of the stock market). Problem is, (1) you can only deposit from wages; so if you only have some other form of unearned income (such as interest) or rents, then you can’t make a contribution for that tax year; and (2) you have to leave it in there for at least 5 years before you can… Read more »

Dick
7 months ago

It is time to let them know they are not exalted gods; just someone elected who is suddenly not entitled to tell us how to live. Refuse, ask them to shove it, civil disobedience to rival nothing ever seen. Sick of politicians who think far beyond their numbskull ideas. Not taking my money as I worked far too hard and too long to prepare for old age, now here, and those low-grade clinglons can shove it. Caught up in their importance, and that is a falsehood. We are not subservient to them, not one whit. Where are the voices telling… Read more »

‘Nonymus
7 months ago

Taxed
Enough
Already

No more new or higher taxes!

Josephine pooley
7 months ago

A very sound idea!

Randy G.
7 months ago

What they would also like to do is come up with some way to get their hands on the billions of dollars many of us boomers have saved in order to take care of ourselves and not have to depend on our children or taxpayers. These democratic socialist candidates are pathetic when it comes to other people’s money.

Pete from St Pete
7 months ago

Taxing savings hurts seniors the most. When I first started preparing tax returns 30 years ago I had many clients who had invested in a jumbo certificate of deposit and were able to use the $5,000-$6,000 interest payment as a supplement to their social security or pension to be able to afford a few of the things that make life more pleasant. Now they are lucky to be able to afford a meal at a decent restaurant on their savings income. Now they have to draw on their principal and hope it doesn’t run out before they die. And our… Read more »

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