I somewhat covered this last week with a blog on retirement and unemployment accounts for people so they can save for retirement and not have to burn those accounts when they are unemployed, especially for long periods of time like as we have seen in the Great Recession. But Senator Ron Wyden, the incoming Chairman of the Finance Committee, taking over for Max Baucus as he leaves the Senate to become U.S. Ambassador to the People’s Republic of China, would like to empower all Americans, especially lower end middle class workers and low-income workers to save for themselves but also to start what would essentially be trust accounts for their children. He has a good idea and I hope he will push it.
We could do this simply by expanding the Earned Income Tax Credit, which is the tax credit that goes to low-income workers to get them off of the Federal income tax rolls. We could expand the eligibility to individuals earning up to $30,000 a year and couples earning up to $40,000 a year and stop taxing savings completely up to, let’s say, 10 percent of one’s income so people could afford to save but also encourage employers to match what their workers put away for savings and also perhaps have a Federal match of the worker’s savings as well for workers who are earning up to $100,000 a year.
I suggest allowing Americans to open two types of savings accounts that would be separate from their retirement and unemployment accounts and allow for middle class and low-income workers to for both themselves and their children and put money away that would be matched by their employers and the Feds as well. That would be tax-free as long as it is not being spent for non-emergency reasons and this would allow all Americans to build up nest eggs and not wipe out their retirement savings or consume so much in public assistance during economic downturns.