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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JohnH
1 year ago

There should not be any tax cuts if they increase national debt. Do not let our debt destroy 200-years of a great republic. Live within your means as bankruptcy is not alternative for a county as it is for individual companies & individuals as the govt. bails them out.

Carol
1 year ago

How is taxing interest that you earned AFTER putting principal in an account …. taxing it twice? The interest is only taxed once.
What I didn’ t like is paying tax on capital gains that I later lost in a down turn of the stock market. I paid taxes n money that I never really had.

Joanned
1 year ago

Socialism has never been successful Just look at the fall of the USSR

Joanned
1 year ago

The Dems are quite famous for promoting elaborate schemes to.raise taxes Example Gavin Newsome, Dem Governor of CA He has many schemes Ie, creating needless taxation and saying it benefits our Children’s schools.Money from CA state lottery is supposed to go to them Many teachers told me they Do Not Get those funds Fraud such as this is abundant in CA Some residents are working to recall him!!!! I know and believe there are many more tax schemes perpetuated mostly By DEMS across the country These people have not had to answer to anyone for years They have no scruples, no accountability and have enjoyed spending the taxpayers money They have no. Budget restrictions and they continuously raise taxes as it suits them 90

Jim
1 year ago

After paying all the taxes that there are for many many years. Sure would be great if people over 70 got a great break on taxes. If not all of them at least some of them.
What a great idea !!!
Hope President Trump will read this note. Lol

Barbara Phillips-Frost
1 year ago

Why is the U.S. $23 trillion in debt? I have never understood this. Can you exlain?

Jim Chett
1 year ago

Let’s face the facts! The Left and “Takers” in our “once Great Nation” need the assets of those who worked, served (Military) and saved. These people outnumber those who contributed. This has become the “new American way.”

Roy Law
1 year ago

Leave it for such a simple common sense idea to come from our President who was and is a business man, and not a lifelong politician on the public trough and enriching themselves in backroom deals. All the do-nothing party can come up with are socialistic and communistic ideas to steal John Q. Public’s money, and the waste it. They can’t even get a caucas right in Iowa. Let people start early saving completely tax free. Do not tax Social Security Benefits, so those retired persons who rely on a majority of their retirement can live better. If there are people with higher benefits, it is because they worked hard during their earning years to earn more. President Donald J. Trump has been sent by the Lord to right the wrongs the socialists have heaped on our people. I truly believe this as a God fearing Christian. God Bless President Trump and go Trump in 2020

Dave
1 year ago

Get rid of the income tax and repeal the 17th amendment. That would solve a lot of problems. Replace it with a consumer (retail) sales tax (NOT a VAT).

John Karkalis
1 year ago
Reply to  Dave

Many would agree,Dave, about getting rid of the income tax, but I don’t understand why you would want to repeal the ” Popular Election of Senators”.
I for one like the idea of voting for the Senator of my choice instead of leaving it up to some legislators.

Ed J
1 year ago

Trust the radical liberal/leftist/socialist hordes of economic idiots to espouse exactly the OPPOSITE of what is best for all the American people when it comes to their “views” on taxation. They demonstrate their abject ignorance of basic economic theory when it comes to taxation issues and their other harebrained economic policies. Categorically, they are almost ALWAYS 180º out from what should actually be done, as this article points out. Thank heavens that we have President Trump at the helm steering our ship of state in the right direction. Let’s hope Trump is reelected so we can have another 4 years for him to consolidate his economic policies.

Brenda Blunt
1 year ago

It seems all those that have a lot of money have no idea what it takes to survive these days. Perhaps they should have to survive on what a retiree or a middle class person lives on and see how long they would not survive!!

Burton Pauly
1 year ago

Seems to me another scam To enrich those who aren’t contributors to the tax code. And another way to hurt our national expansion in wealth. So we see the left as our real enemies, ahead of foreign nations.

Marty Benson
1 year ago

The recently passed “SECURE ACT” further punishes savers with IRAs and 401Ks by requiring heirs (excluding spouses and a couple of other exclusions) of these vehicles to take all distributions within ten years along with taxes on the distributions. Prior to the Secure Act, provisions were in place to permit heirs to continue to keep these qualified plans with an adjusted Required Minimum Distribution each year. Congress again changed the rules and in so doing screwed all of us who thought we had a way to pass on tax deferred IRAs and 401Ks. The original plan would have had heirs paying taxes incrementally over the life of the saved funds. The SECURE ACT ensures that the Government will get their greedy hands on all of the taxes within ten years following the remaining spouses death. At that point, the tax deferred nest egg for the heirs will be depleted. Many aspects of the SECURE ACT have some merit. The end of the “stretch IRA” STINKS! BTW, the SECURE ACT had nearly total bipartisan support in Congress. Sad state of affairs.

Pete from St Pete
1 year 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 government still adds their pathetic amount of interest to their taxable income! It seems to me they could at least make the first $1,000 of interest tax free each year.

JohnH
1 year ago

Another side of the story, if savings were not taxed then the billionaires would have their big dollars in these accounts & would generate a lot of tax free money.

PaulE
1 year ago

If all you’re focused on is low-yielding savings accounts and bank CD’s (yes zero risk to principal, but you get virtually nothing in return), then yes that is all you’re going to earn. Between existing tax rates on interest and inflation, you’re not earning any return on your money. Virtually NOTHING. Better to teach young people to broaden their horizons of what savings and investment means beyond trying to rely on such low-yielding instruments. Just a thought.

Randy G.
1 year 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.

JohnH
1 year ago
Reply to  Randy G.

The best thing that happened to Boomers is the formation of the 401-K plans around 1980 & that has allowed many of us to save for our retirement years.

carol
1 year ago

As long as leftist are in charge milking the system for themselves and their cronies, they don’t give a rats rear end about any of the rest of us!

carol
1 year ago

This is a GREAT idea!!! I started saving years ago and have used that account to help me fix up my house when needed. Now I’m stashing away more to help with a downpayment on a new home before I sell my old one. Democrats HATE when American workers have more freedom to make their own decisions and NOT NEED government as much! To Democrats only with them in control is everything ok with them. That is NOT how this country was founded!!! I pray that the Democrats get clobbered in the next election by Americans that know what’s going on and to those waking up to what’s going on! SAY NO TO all the Democrat candidates who are all dictator wannabes!

Diana
1 year 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 my 70 years, it was Great and you can see who is for America and our Constitution as Written, and it sure not the democratics they are a communist party now they are against Freedom, People’s Rights, and what is good what is just, and they have no Honor shameful very shameful, we need to demand our government make it illegal to try and Change, Distort, Twist, Ignore, Our Constitution as Written. That is Treason at the highest level. To under mind Our Constitution, Our Laws, that includes politicians, judges, police, military, state and federal, hope we are getting back to Common Sense we lost it somewhere along the way, and we need it.

G Schalk
1 year ago
Reply to  Diana

re tax on dividends – follow Mexico’s lead and have no tax on dividends from a domestic stock. Even they have figured out that a corporate income tax AND tax on dividends is DOUBLE TAXATION

toprudder
1 year 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 withdraw it. So, I agree that fewer restrictions would enhance the average savings of Americans; and also with an earlier poster who wants no taxes on Social Security, vs. the current maximum of 85% of SS that is subject to taxation. Also, we give Free Medicare Advantage plans to those who have spent everything they ever made, but just let someone who saved all their lives to avoid, in their old age, becoming a burden on their children or society in general. They have to pay the Medicare Advantage premiums. So, again we penalize savings. Likewise, just have to go to an Assisted Living or Nursing Home, if you are indigent the government will pay for it, but if you have any assets, savings, a home, etc. then you have to pay it yourself, and from experience I can tell you it will cost $36,000 to $70,000 a year, depending on the rates in your geographic area.

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