Amity Shlaes and Chris Edwards have an interesting op-ed in the Wall Street Journal today where they look to our northern neighbors in Canada for a tax reform solution. Before you scoff at Canada, let’s not forget our friend Robert Mundell is Canadian:
Canada’s Tax-Free Savings Accounts are much more flexible than Roth IRAs. What are we waiting for?
There are several reasons the U.S. is primed for its own TFSA. The first is legislative: Creating such an account would not be difficult for lawmakers, certainly not compared with revamping the whole tax system. Congress can simply expand eligibility and lift limits on the Roth IRA format.
We believe this new tax vehicle—call it the Universal Savings Account—would be so attractive that Americans would select it over education savings accounts or traditional programs, especially if its annual contribution limit is $7,000 or $8,000, which is higher than the current $5,500 for Roth IRAs. There would be no need to cut off access to or abolish the Roth IRA or other programs. Merely let citizens choose a new one.
Another virtue of a Universal Savings Account is simplicity. Savers would spend more time evaluating investments and less time mastering the twists and turns of tax law.
A Universal Savings Account would also give citizens the incentive to save. Without withdrawal penalties hanging over them, people would be less likely to hesitate before putting money into these accounts. Some people might use their accounts to fund an expensive vacation. But it’s much more likely they would use the money for serious projects, to build up a retirement fund, or even to invest in a new enterprise.
Some critics might charge that a Universal Savings Account can’t be “pro-family” if it also benefits unmarried millionaires. We disagree. Tax policy is not a tug of war between families and singles: All can win. The autonomy these accounts offer to everyone will make families become—and think like—millionaires.
Other critics will warn about revenues lost decades hence when Americans withdraw tax-free. But shortfalls in the future may well be made up by the growth that would ultimately flow into federal coffers. The growth that comes from more savings and investment will raise living standards. And Americans, single or in families, middle class, lower-income or affluent, would become more self-sufficient.
Let’s follow the good example of our Canadian neighbors. And let’s judge the presidential candidates by how seriously they take true savings projects such as this one.