The WasteWatcher: The Staff Blog of Citizens Against Government Waste

How Tax Reform 2.0 Could Impact Savings

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


The Tax Cuts and Jobs Act (TCJA), the tax bill passed in Congress last year, represents the most substantial change to the nation’s tax code in a generation. This change has greatly benefited the U.S. economy as American businesses have become more competitive globally while American workers have seen an increase in their wages.

Economists at the International Monetary Fund (IMF) credit the tax bill with growing the U.S. economy by two-tenths of a percentage point in 2018.  This upward revision brings U.S. economic growth this year to 2.9 percent.

Included in the tax reform package was a temporary allowance for companies to fully expense investments. The IMF found that this was a strong incentive for businesses in the U.S. to further their investment projects, and this investment lifted employment and increased American consumption. But there is much left to do.

Last month, the House of Representatives passed a series of bills that House Republicans dubbed “Tax Reform 2.0.”  These bills adjust and build upon TCJA to enact reforms that protect the upswing in our economy and strengthen its potential for growth.

One of the bills included in Tax Reform 2.0 which has incredible potential is H.R. 6757, the Family Savings Act of 2018.  This bill would create small universal savings accounts where individuals could contribute up to $2,500 into the accounts on an annual basis.  The best part: any withdrawals from these accounts would be tax free.  H.R. 6757 would also encourage retirement savings by making a number of reforms to existing retirement accounts.  These changes include removing the prohibition that prevents individuals who have reached age 70½ from contributing to traditional Individual Retirement Accounts (IRAs).

According to the Tax Foundation, Americans are not saving enough to keep up their standard of living once they reach retirement.  Access to uncomplicated tax-neutral savings must be expanded to combat this problem. Under the current system, a large percentage of retirement savings available to American workers are subject to an enormously complex and confusing regulatory structure.  For instance, every tax-neutral retirement savings account has its own set of restrictions and rules.  If one doesn’t use a tax-neutral retirement vehicle, any savings is then subject to multiple layers of taxation which reduces an individual’s after-tax return.

Creating small universal savings accounts would be valuable to many Americans, and the more Congress does to reduce the burden on saving, the more taxpayers will save.  Legislative efforts should be focused on simplifying and reducing the tax burden on saving. H.R. 6757 holds a lot of promise.  We should do everything we can to champion it and all of Tax Reform 2.0.

 

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