No to Child Savings Accounts

Finance, Child Savings Accounts and Other Tax-Advantaged Accounts Benefiting American Children, May 21, 2024

Child Savings Accounts are a lovely idea, but only when families who need and do not have adequate income for day to day living are taken care of first.  Without such income, CSAs are only useful for the middle class. By middle class, we mean those who receive the middle third of total adjusted gross income. Families with under $110,000 in AGI cannot afford to save and only many pay minimal taxes in the grand scheme of things. There is not much tax to offset for those who earn the bottom third of incomes.

Raising the minimum wage from a paltry $7.25 in many states to at least $18 per hour will benefit this entire income class - as higher than minimum wage employees will also receive more per paycheck, with franchisees demanding renegotiated rates or a guaranteed minimum salary. Congress can also require franchisors to adjust agreements to make sure that small business owners are not stuck between a rock and a hard place.

Even more important is an adequate and fully refundable child tax credit. At the very least, the legislation passed by the House needs to be passed by the Senate. The Minority cannot, in good conscience, favor regulating abortion without providing for adequate funding for families. Doing so would be the height of cruelty.

The level passed by the House could easily be doubled under our proposal, provided the home mortgage deduction is ended, along with Supplemental Aid to Needy Families, dependent care benefits under Social Security survivors and disability benefits programs (thus securing the program’s long term health) and the paperwork intensive Earned Income Tax Credit. 

During the pandemic, the IRS managed CTC advance payments. This had the “stink of welfare” that even some Democratic Senators objected to, which led to its discontinuance.  We repeat our contention that, over the long-term, it would be more acceptable to distribute them either through other government subsidies, such as Unemployment Insurance, Disability Insurance, or a training stipend OR through wages. 

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. 

Tax reform can be used to facilitate this process. Instead of having each family file to collect their child tax credits and EITC (as an end of the year bonus), enact an employer paid subtraction value added tax and make child tax credits and health insurance tax benefits an offset to the payment of this tax and remove most families from having to file taxes at all. Tax offsets could also be created to fund paid family medical leave, sick leave and childcare provided through employers. 

Enactment of a Credit Invoice Value Added Tax will make sure every family pays something, especially wealthy individuals who dodge income tax payments for themselves and their heirs by borrowing money against their wealth rather than receiving it as income, taking advantage of capital gains tax rules for the transfer of intergenerational wealth and using insurance policies to do the same thing. Such a reform would do more than offset a higher CTC. It will also help lower the deficit by a significant amount.