Originally by Michael Mechanic at Mother Jones
Heritage Foundation’s Project 2025 and the Proposal for Universal Savings Accounts
The Heritage Foundation’s Project 2025, a comprehensive plan for a potential second Trump administration, features several noteworthy proposals. One of the less discussed elements is the introduction of “universal savings accounts” (USAs).
All taxpayers should be allowed to contribute up to $15,000 of post-tax earnings into USAs. The tax treatment would be similar to Roth IRAs. USAs would be flexible for saving and investing, with gains being non-taxable and available for withdrawal at any time for any purpose. This would allow most families to save without facing double taxation.
This concept aims to provide a patriotic avenue for savings. However, it raises several questions about its impact and beneficiaries.
Cost and Beneficiaries of Retirement Subsidies
Current retirement savings programs, including pensions, 401(k)s, and IRAs, are designed to help Americans prepare for old age. However, these programs, while beneficial on the surface, are costly, representing the federal government’s largest tax expenditure. They are projected to cost nearly $2.5 trillion over five years and tend to favor the affluent.
For instance, Peter Thiel reportedly turned a $1,700 Roth IRA contribution into over $5 billion using shares from PayPal. He is among many who have accumulated millions in their IRAs, as highlighted in a ProPublica report and by the Senate Finance Committee.
Implications of Universal Savings Accounts
Project 2025’s USAs would function as enhanced Roth IRAs. With a $15,000 contribution limit—more than double that of Roth IRAs—and no income cap, these accounts would be accessible to the wealthy. Furthermore, withdrawals could be made at any time for any purpose.
USAs would obliterate the rules and cost the government a lot.
The flexibility to invest in businesses is a critical feature of USAs, potentially enabling significant tax avoidance. Wealthy individuals, such as CEOs and fund managers, could deposit low-value assets into these accounts, allowing them to grow tax-free into substantial fortunes. This potential for tax avoidance could result in significant revenue losses for the government.
The absence of restrictions—larger contributions, no income caps, and unrestricted investment options—would likely exacerbate wealth inequality. Historical data indicates that wealth inequality has been rising, with the top 1% earning 42 times more than the bottom 90% in 2021.
Considerations for Policy Implementation
USAs might be a viable option if they were limited to individuals earning less than $100,000 and structured to prevent tax evasion. However, as currently proposed, they risk increasing economic disparity—an issue that remains critical for policymakers.
