Congressional Republicans are set to introduce legislation on Thursday aimed at giving consumers a tax-free haven for their savings interest.
The Universal Savings Account Act, sponsored by Rep. Diana Harshbarger (R-TN) in the House and Sen. Ted Cruz (R-TX) in the Senate, is designed to encourage taxpayers to save by simplifying the “complex rules and restrictions” in current law.
“Washington shouldn’t be in the business of micromanaging how people use their own money,” Harshbarger said in a statement to the Washington Examiner. “This bill is a win for working families, a win for personal freedom, and a win for financial independence.”
Under a universal savings account, the holder would not have to pay taxes on the income earned from interest, giving consumers more flexibility for unexpected costs on housing, healthcare, and more.
Anyone 18 or older who is a citizen or permanent resident can open an account with an initial contribution limit of $10,000 in after-tax income; the limit then increases by $500 each year until it reaches $25,000.
The initial maximum for couples filing jointly is $20,000. Anyone, regardless of income, can open and contribute to an account up to the limit each year, allowing them to avoid double taxation.
The current tax code includes several types of savings accounts that receive only one layer of taxation, many of which are limited to “government-approved” purposes.
“A simple and accessible incentive savings plan will provide families with a way to establish financial security and prosperity,” Cruz said in a statement. “This bill provides a straightforward solution to those challenges. I strongly urge my colleagues to pass this bill for the future generations of Americans.”
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Harshbarger previously introduced similar legislation last Congress that had six other Republican co-sponsors, but it was not given a floor vote. This version of the bill allows taxpayers to open custodial USAs for children. The last bill also had income phases-outs for eligibility, while this version has no income limitations.
The legislation allows the money to be invested in bonds and equities, with tax-free withdrawals at any time. The accounts are similar to a Roth IRA but allow money to be withdrawn for any reason, not just retirement. Similar legislation passed the House in 2018 but did not make it to the Senate.
Those who oppose creating tax-advantaged savings accounts argue they disproportionately help high-income earners who have the means to invest and that workers who spend most of their income on basic needs will not benefit from the reform.