Texas recently became the 18th state to create a K-12 education savings account that lets families spend state-funded dollars on private tuition and other educational items. Florida has two such programs, while Tennessee has three.
None of these state-level education savings accounts is to be confused with federal 529 savings accounts, which allow families to put aside earnings tax-free for education expenses. This can include up to $10,000 a year, per child, for K-12 tuition.
Then there are the Health Savings Accounts, the Health Flexible Spending Arrangements, the Health Reimbursement Arrangements, and the Medical Savings Accounts, all of which are tax-advantaged health benefit accounts that let individuals or employers set aside money to pay qualified medical expenses. The plans all have dizzying details on who can contribute and when, what they can be used for, and whether unused balances can roll over from year to year.
And don’t forget all of the possible retirement accounts, including IRAs, Roth IRAs, 401(k)s, 403(b)s, 401(a)s, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs. Each program has its own eligibility, contribution, and rollover rules, so switching jobs means navigating a maze of paperwork. The tax code also includes savings accounts for disabled Americans, called ABLE accounts, and Dependent Care FSAs for child care. And yes, the rules for all of those programs are equally byzantine.
If it seems like the federal government already has way too many specialized savings accounts, don’t worry, more are being proposed every day!
Sen. Ted Cruz (R-TX) introduced the Invest America Act, which would make the Trump Accounts from the One Big Beautiful Bill Act permanent. The Invest America Act would create another tax-advantaged investment account available to every child and seeded with $1,000 from taxpayers, which would become usable after age 18 for qualifying major life expenses. And of course, rich families would be allowed to pour more money into their accounts.
One Washington think tank has even proposed Home Savings Accounts, which would help people afford new homes by allowing them to put away up to $10,000 per year pretax, with all gains in the account becoming tax-free. The money in the account could then be used to buy a home.
By themselves, each of these savings account programs is completely defensible. Collectively, they are a failure of imagination and a complete mess.
According to the Congressional Budget Office, most benefits from these programs go to the wealthiest households, which makes sense because wealthy people stand to benefit the most from programs that shield income from taxation. The Brookings Institution found that about 60% of all Health Savings Accounts tax benefits went to households with incomes above $100,000. Likewise, the Government Accountability Office found that less than 3% of households had money in 529 education plans, and that those who did had three times the income of those that did not.
PREDICTION MARKETS ARE FAKE NEWS MACHINES
If you are looking for ways to help struggling young families afford basics like housing, healthcare, and education, savings accounts are not the answer. They primarily benefit families that do not need help from taxpayers and needlessly complicate an already far too complicated tax code.
The Tax Foundation’s “four principles of sound tax policy” are simplicity, transparency, neutrality, and stability. Proposing a separate savings account for every policy issue under the sun violates every one of these principles. It is time for Republicans to find a new play for their playbook.
