Recent studies have shown that the rich are really getting richer, with the percentage of the total wealth in the United States they own increasing at an ever faster rate.  A new Savings Account that is being proposed could serve as another means to continue to this uneven wealth distribution.

Congressional Republicans are proposing this newest savings account which they are calling the “Universal Savings Account”.  The new tax proposal, which Republicans will be introducing this Fall, is being spear-headed by Representative Dave Brat (R-VA) and Senator Jeff Flake (R-AZ).  Under their proposal, there is a specific provision detailing new retirement savings.  Within this provision, individuals would be able to contribute or roll over up to $5,500 each year to the Universal Saving Account.  Any contributions would be after-tax income and the earnings from the accounts would be tax-free, much like the traditional Roth retirement account.

These Universal Savings Account would serve to benefit the wealthy because by nature, they will really serve as a tax shelter for the wealthiest Americans.  Wealthier Americans can afford to make those annual contributions up to the $5,500 limit; however, the average American will not get anywhere close to this maximum threshold.  A recent study showed that the median household in the United States has about $1,000 in taxable accounts that they would be able to roll over into the Universal Savings Account.  On the other hand, the top 20% of Americans, considered wealth Americans, have an average of $470,000 which they could roll into the Universal Savings Account.  Although they could not roll all those funds into the account in year one, year by year they could roll over the $5,500.  Instead of serving as a real universal benefit, the proposal increases tax benefits on wealthy families and makes it even harder for lower-income households to save the money they will need for retirement.  In essence, the wealthy would not increase their savings, but receive new tax breaks on the money they already have saved.

Critics of the new proposal say that it introduces a few problems.  First off, as previously mentioned, it is a tax advantage that the average American will not be able to take advantage off.  Thus, the Universal Savings Account is not truly “universal”, it is only universal to wealthy Americans.  Second off, critics argue that because it will not benefit a large portion of the population, it really is just an added complexity.  Currently, there are already many types of accounts and products which exist to help increase savings going into retirement.  Right now, very people even use their IRA’s to save for retirement as they do not have enough money to allocate to that account.  This new obstacle would add that layer of confusion and another hurdle for the average American family to increase their wealth and work towards becoming a wealthy American.  Finally, critics argue that this new Universal Savings Account would weaken over retirement savings like IRAs and 401(k) plans.  As a whole, they understand that Americans need help retiring as much money as possible, but adding complexity and inequality will do nothing to address this on-going problem.

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