Congress is working on another slate of tax changes that could yield big benefits for Americans and families.
Yesterday, House Republicans unveiled a framework for the next version of tax cuts. The reforms are aimed at allowing workers to keep more of their paychecks permanently, build savings for now and retirement, and tap into current resources for immediate needs like new babies and work training.
Tax reform 1.0 (i.e. the tax cuts and reforms passed in 2017) delivered tax cuts to 90 percent of American workers and a $2,000 average tax cut for a family of four. Tax changes also spurned bonuses, wage increases, and new benefits like paid leave for over 4 million workers.
Here are 3 things Tax Reform 2.0 promises to American families:
Make tax cuts permanent for individuals and small businesses. Congress wants to provide individual workers and small business owners the certainty that their tax cuts won’t expire in 2025 by making the cuts permanent.
Encourage workers to save for the future. Congress will consider proposals to help local businesses provide retirement plans to their workers.
Help families save for life’s happenings. Congress proposes several new or expanded savings vehicles for families:
Create a Universal Savings Account that families can use for a variety of needs
Expand 529 education accounts to pay for apprenticeship fees to learn a trade, fund the cost of homeschooling, and help pay off student debt.
Create New Baby savings that allow families to access their own retirement accounts penalty-free for expenses when welcoming a new child (birth or adoption).
There is also proposed relief for startups and entrepreneurs, which will be a big help to women–the fast-growing demographic of small business owners.
Check out the full outline of Tax Reform 2.0 here.
The big takeaway is that Congress wants Americans to start saving for their needs now and in the future. They are willing to use various levers in the law to make that happen.
According to the Federal Reserve, 40 percent of Americans don’t have $400 in emergency funds saved. $400 is hardly enough to purchase a flight from the East to West Coast if a family member suddenly falls ill, to pay for a week-long hotel stay if your home floods, or to meet a car insurance deductible following an accident.
An opinion piece in The Hill by a former deputy assistant at the Treasury underscores that Americans have a chronic savings problem and relying on government is not a good back-up plan:
The 2017 tax law stimulated investment and economic growth, but those benefits will not solve the problem of America’s chronically low savings rate. Saving increases financial security and makes people less dependent on the government for everything from food stamp benefits to retirement income.
Given that the government is running massive deficits and will likely slash benefit programs down the road, the more financial independence people have, the better.
As they say, “the devil is in the details” of any plans for tax reform. We also don’t how this would be funded, which is an important question.
We can welcome Congress’s attention to providing more financial relief to Americans and encouraging greater personal savings rather than government reliance.