The White House is floating a new proposal as part of President Trump’s forthcoming election time tax cut agenda: allowing taxpayers to save up to $10,000 on a tax-privileged basis, a policy meant to increase participation in stock markets and encourage wealth-building.
“The big thing we’re trying to drive here is: How do we get every American to own stocks?” said Steve Moore, an economist at the conservative Heritage Foundation and a confidant of Trump’s White House who has helped formulate the proposal.
“How do we democratize the stock market? This would be one step toward that goal,” said Moore, who is also a columnist for the Washington Examiner magazine.
The proposal is one of several ideas under consideration as a part of Trump’s tax cuts 2.0. Effectively, it would extend the concept of 401(k)s to a broader swath of savings, allowing people to deduct savings from their taxable income.
Larry Kudlow, the director of Trump’s National Economic Council, told CNBC that the tax cut proposal would resemble a universal savings account that could be filled on a pretax basis. Kudlow added, though, that the proposal was just an idea at this point, with no official decisions made yet.
Moore said that the new tax cut would mostly help people in the $50,000-$150,000 income bracket and could lead to “knocking off a couple million people from income taxes altogether.”
Kyle Pomerleau, a tax specialist at the right-leaning American Enterprise Institute, said the proposal was a good idea and that he would like to see the tax cut “universally applied” for other types of savings accounts, including for accounts that already exist.
Some left-leaning economists weren’t as enthused by the proposal though.
“I think it just ends up exacerbating inequality and making it worse,” said Jared Bernstein, a former economic adviser for Vice President Joe Biden.
”I think it’s another one of those problematic ideas, another tax incentive that’s upside-down in terms of who it helps. These ideas typically help people who would make such investments anyways, and so then, what’s the point?” asked Bernstein, who is now a fellow at the left-of-center Center on Budget and Policy Priorities.
One possible criticism of the proposal is that it isn’t focused on those at the bottom of the economic ladder.
“If you want to help low-income and moderate-income people, this is not the thing to do because it wouldn’t do anything,” said Chuck Marr, senior director of federal tax policy at CBPP. “There’s no added incentive to invest in the market.”
Liberals often prefer tax proposals that give poor people a tax credit rather than a deduction, allowing them to receive money back even if they have little or no taxable income.
Marr said that there were much better tax proposals to help low- and moderate-income people, such as changing the child tax credit portion of Trump’s 2017 tax cut to include families who are economically marginalized. Making it easier for people to have an emergency savings fund, helping people prepare for unexpected costs outside of healthcare, would be another way the federal government could help those less fortunate, Marr added.
But Moore pushed back, saying that the tax proposal is “aimed at those with middle to upper-middle income,” not lower-income Americans who have a very low tax threshold already.
