With less than 100 days until the election, many questions remain about the future of our nation’s economy. Even in times of unprecedented political turmoil, most Americans The biggest source of stress is financial issues.
It’s worth asking: What plans do the presidential candidates have to help Americans earn and save more?
Unfortunately, they don’t say much. But there are bipartisan policies readily available that could help Americans save more.
Vice President Kamala Harris has yet to flesh out her policy platform, but much of it is likely to be carried over from the Biden administration. Former President Donald Trump typically avoided policy details, preferring lengthy campaign speeches that focused on protectionism and the plight of American workers.
Both parties have tried to speak vaguely and imprecisely of widespread financial instability revealed by the pandemic’s economic shutdown, soaring inflation, high interest rates and ongoing home price surge. Trillions of dollars of taxpayer money They turned to bailout payments and fiscal stimulus measures (all deficit-financed), many of which backfired in the form of inflation and led to their current predicament.
The policy proposals put forward so far are all similar: higher tariffs, tax credits, exceptions (“no tax on tips”), and deficit spending are all short-sighted, stopgap solutions that would further increase the federal debt, distort the economy, and risk a trade war.
Whatever their appeal, these policies are becoming increasingly irresponsible as we seek to address our excessive national debt.$35 trillionor to prepare for the next economic downturn. unemploymentIt has been on an upward trend since March.
A better, more sustainable approach is to pursue policies now that encourage a wider range of households to save and build assets for the future. To do this, Americans need easier ways to save without excessive taxes and paperwork.
Generally, the current tax code encourages people to spend now rather than save for the future through taxes on a worker’s wages and on the amount of those wages they save. To offset this effect, the tax code is chock full of incentives for certain kinds of savings, with complex rules that generally favor higher-income households.
For example, some employers offer 401(k)s and other defined-contribution retirement plans, but only a small percentage of low-income earners can afford to participate in these plans, and many don’t. Options like health savings accounts are even more niche, available mainly to higher-income earners who work for large companies.
As a result, most Americans have very little savings. The average household savings rate has been declining for decades and has fallen since the pandemic. 3 to 4 percentAccording to the Federal Reserve Bank: half One-third of Americans have enough emergency savings to cover three months of expenses. Bankrate It shows that three in four Americans feel financially insecure, including most low- and middle-income earners.
Other countries have found a simple solution that has proven extremely popular: boosting household savings at all income levels.Universal Savings AccountIt is a tax-advantaged savings vehicle with no restrictions on the use of funds, allowing participants to save for a variety of reasons, including retirement, education, housing, health, unemployment and emergencies.
For example, just as we can open a savings account at any bank, Canadians can go to a bank and open a tax-free savings account, meaning there are no additional taxes on earnings and no penalties on withdrawals for any reason. The only real restriction would be the annual contribution limit, but this would be much simpler and more attractive than current tax-advantaged options.
About 60 percent About one-third to one-half of the Canadian adult population owns such accounts, with the average balance being about $15,000A similar policy has been implemented in the UK with equally impressive results.
Our analysisWe conclude that such a policy could be implemented in the United States without busting the budget. In fact, it could be paid for by eliminating other less effective tax-advantaged options, such as health savings accounts. This trade-off would simplify the tax code, reduce compliance costs, and shift benefits to low- and moderate-income households.
As candidates seek to capitalize on voter discontent, they should offer clear, simple policy solutions, such as universal savings accounts that would simplify saving for Americans and increase taxpayers’ financial security without increasing the national debt.
William McBride is vice president for federal tax policy at the Tax Foundation, a nonpartisan tax policy think tank in Washington, DC.
