Senator Ted Cruz from Texas is once again stepping up to the plate with a new bill aimed at helping families save money with fewer tax headaches. Previously, he’s pushed for expanding tax-deferred education savings plans and set up Education Savings Accounts for military families.
Now, he’s rolling out the Universal Savings Account Act to let American families save without the usual restrictions and penalties tied to traditional tax-advantaged accounts.
Cruz explains that this is all about giving families a simple way to build financial security and prosperity. “A simple and accessible incentive savings plan will provide families with a way to establish financial security and prosperity.
This bill provides a straightforward solution to those challenges,” he stated. The core idea is to tweak the Internal Revenue Code of 1986, creating what’s called Universal Savings Accounts (USAs).
Under the proposed legislation, USAs would be defined as a trust where cash is deposited or withdrawn. There are some rules though; initial contributions are capped at $10,000, with the possibility of bumping it up by $500 each year until it hits a $25,000 annual limit. The real kicker is that withdrawals wouldn’t be counted as part of gross income or taxed, which is a big plus for those trying to save.
Importantly, this plan doesn’t limit contributions based on income levels and allows for adjustments based on inflation. However, the funds can’t be mixed with other property or invested in life insurance, keeping things straightforward.
In a move to gain broader support, U.S. Representative Diana Harshbarger from Tennessee has introduced a similar bill in the House of Representatives.
Harshbarger is all in, describing the bill as “commonsense” and saying it will “empower Americans to take control of their financial futures.” She highlights that this bill “cuts through red tape and gives every American a flexible, tax-free way to save, invest, and spend – without government interference or penalties.” This reflects a philosophy that government should step back and let people manage their own finances.
A detailed analysis from the Tax Foundation backs up the need for such a move. They point out that most current savings options are a double whammy on taxpayers since their savings get taxed after income tax has already been paid. This double taxation hits people saving for emergencies, buying a home, starting a family, or even launching a business.
The foundation criticizes current tax-advantaged savings options as being overly complicated and restrictive, limiting their usefulness for many Americans. USAs, on the other hand, would be simple and flexible, allowing people to save for any purpose without penalty or excessive paperwork. This could be a significant advantage for low-income households, helping them save and move up the financial ladder.
The long-term vision is that by encouraging more saving, USAs would boost financial security and upward mobility across all income levels. The Tax Foundation argues that the current federal tax code discourages saving because it taxes income twice: once when it’s earned and again on the returns from savings. By contrast, there’s no extra tax on income spent rather than saved, which doesn’t exactly encourage saving.
If USAs become a reality, they could effectively exempt most investment income earned by low- and middle-income households from taxes, giving saving a real shot in the arm for these groups.
Harshbarger sums it up by saying that if passed, the bill would be “a win for working families, a win for personal freedom, and a win for financial independence.” It’s a clear push towards giving people more control over their finances.
The proposal fits neatly into the conservative philosophy of reducing government interference and letting individuals make their own financial choices. It’s about making savings straightforward, accessible, and beneficial for everyone, rather than just the wealthy. As discussions continue in Congress, this bill is drawing attention as a potential game-changer for American savers.
