The Tax Foundation recently hosted an online discussion on Universal Savings Accounts (USAs), their success in Canada and the UK, and how they could potentially benefit Americans. The conversation was led by Will McBride, Vice President of Federal Tax Policy at the Tax Foundation, and Chris Edwards, Kilts Family Chair in Fiscal Studies at the Cato Institute.
According to the Federal Reserve, the percentage of Americans with emergency savings to cover at least three months of expenses has dropped from 59% in 2021 to 54% in 2022 and 2023. As pandemic-era surges in saving receded, more Americans are relying on credit card debt, other forms of debt, or retirement savings to finance spending.
Current law provides at least 11 different types of tax-advantaged saving vehicles, each with volumes of complicated rules and limitations. For most of these accounts, only a fraction of eligible people actually participate. However, a simple solution exists and is tried and true in Canada and the UK.
Universal savings accounts, or tax-free savings accounts as they are called in Canada, are tax-advantaged savings accounts that allow individuals to deposit their money, invest in stocks and bonds, and withdraw their funds for any reason, without restrictions or penalties. The earnings are treated like a Roth 401(k) or individual retirement account, taxed once when the money is deposited and tax-free when withdrawn. The United Kingdom has a nearly identical savings account, named individual savings accounts.
The discussion explored who uses these accounts in Canada and the UK, their experience, and what the experts have found from the data. Drawing on this evidence, the possibilities for universal savings accounts in the United States, how they might work, and their status in Congress were discussed.
The Tax Foundation has released a new paper modeling universal savings accounts and exploring the research on the current accounts in Canada and the UK. This conversation and the new paper provide valuable insights into the potential benefits of USAs for American citizens.
For more information, visit the Tax Foundation’s event page.