Support the President’s Tax-Free Savings Plan

Although the media has focused on the President’s proposal to end the harmful double taxation of dividends, he deserves far more credit for proposing tax-free savings accounts.  These accounts would benefit millions of American families not only by reducing their taxes, but also by planting the seeds for them to enjoy financial stability and peace of mind decades later.

Sadly, however, the President’s own Republican leadership in the House of Representatives opposes the new savings accounts.  Some members have told the White House that they will not fight to ensure passage of the proposal, preferring instead to tinker with the current retirement plan rules.  This is truly unfortunate, because the President and our nation desperately need real anti-tax conservatives crafting legislation in the House.

The President’s plan is simple.  Taxpayers can create two new types of saving plans, called Lifetime Savings Accounts and Retirement Savings Accounts.  They can contribute up to 7,500 after tax, nondeductible dollars to each account every year.  Unlike IRAs, 401(k)s, and other types of retirement plans, there are no complicated restrictions or tax rules.  Taxpayers accumulate earnings on their contributions, and with the Lifetime account can make tax-free withdrawals anytime.  With the Retirement account, taxpayers can make tax-free withdrawals after age 58.  Both accounts would allow taxpayers to save significant sums for their retirement, which any rational financial planner would encourage.

Yet many in the spendthrift Congress think income taxes that consume one-third or more of most Americans’ paychecks are not enough.  They believe in taxing income twice: first when it’s earned, and again when it’s saved.  Yet why should interest, dividends, and capital gains be taxed a second time?  Is the congressional appetite for spending really so voracious that we cannot even allow taxpayers to enjoy some tax-free savings, as proposed by the President?

Incredibly, members of both political parties seem to question the obvious benefit of tax-free accounts.  With the Social Security system threatened by demographics and congressional spending raids, the need for private retirement saving has never been greater.  America was in fact built with private savings.  Only when individuals save money does a society develop the capital for investment and lending that is so critical to economic growth.  Impoverished nations, by contrast, have little or no capital.  This is often because of burdensome taxes and a lack of property rights.  The desire to save money and build a better life is intrinsically human, and no society that punishes saving can remain prosperous for long.

The President’s proposed savings accounts could put millions of Americans on the road to self-sufficiency.  The only alternative to private saving is to allow ourselves to become a nation of government dependents, relying on Social Security and federal programs in our retirement years. Congress, especially the House leadership, should work hard to avoid this terrible fate by quickly passing tax-free savings accounts into law.