Universal Savings Accounts to Help Families Build Wealth

I recently testified before the Senate Finance Committee on the importance of personal savings and how poorly designed tax systems and social welfare programs keep many Americans from putting money away for the future. I highlighted universal savings accounts (USAs) as one important reform to help more Americans save for their own priorities. You can read my full testimony here and watch it here. The government shouldn't subsidize or penalize savings. Responding to market incentives, individuals and businesses know best how much to save and invest when government policy doesn't get in the way. What follows is an expansion of my comments on universal savings accounts as one way to reduce the government's distortion of personal savings. Traditional income tax systems encourage consumption over saving by assessing multiple layers of tax on interest and investment returns. Wages are first taxed by income and payroll taxes. Any saved income that increases in value is often taxed again by levies on interest, capital gains, dividends, and transfers at death. The corporate income tax adds another layer of tax on income earned from corporate equity investments. All these taxes reduce market incentives to save.