To hide most of the costs of their proposed tax cuts, Senate Republicans are relying on a budget gimmick known as the current policy baseline. This gimmick assumes that Congress has already made enormous temporary tax cuts permanent and has taken responsibility for the costs when in fact they never did so.

This weekend, the official revenue estimate for the Senate tax bill from the Joint Committee on Taxation (JCT) showed this gimmick in action. JCT estimates that the Republican bill in the Senate would cost just $441 billion over a decade compared to current policy. That is another way of saying that the legislation would cost $441 billion over a decade if one assumes that the bill’s provisions extending temporary tax cuts cost nothing. The bill actually would cost $4.2 trillion over a decade according to a separate estimate provided by JCT using its normal methods.

JCT’s normal approach is to compare the effects of tax legislation to current law. That is another way of saying that JCT usually follows the commonsense approach of estimating the effects of legislation compared to what would happen if Congress did nothing and we are all subject to whatever tax laws have already been enacted.

Much of this year’s tax package is made up of extensions of tax cuts passed in 2017 that are expiring at the end of this year, so the difference between using the current law baseline and the current policy baseline is enormous. For instance, extending the changes to individual income tax rates and brackets in the 2017 law is estimated to cost only $83 billion over a decade compared to current policy while the exact same policy is estimated to cost about 27 times as much ($2.2 trillion) over a decade compared to current law.

Why are Senate Republicans using this gimmick to make their tax cuts appear to cost far less? One obvious reason is that they want their legislation to appear to the public to be less fiscally irresponsible, but that is only part of it. The other reason relates to the rules that govern when and how they can use a process to pass legislation with budget impacts more easily.

Generally, any U.S. Senator can block legislation (commonly called “filibustering”) unless 60 of the chamber’s 100 members agree to end debate and allow a vote. The “budget reconciliation” process allows Congress to pass certain legislation with a simple majority in the Senate if they have a budgetary impact. Republicans therefore want to use the reconciliation process to enact legislation extending the tax cuts, because they do not have 60 votes in the Senate to overcome a filibuster.

In order to enact a law through the reconciliation process, it must comply with several rules. One of them is that the legislation cannot increase the deficit outside the “budget window,” the 10-year period that lawmakers examine for fiscal questions.

This is one reason why the 2017 Trump tax law was drafted with so many temporary provisions, even though the drafters never really wanted them to expire. If the provisions had been permanent, the 2017 law would have cost more than the rules allowed. Making many of them temporary prevented official budget estimators from projecting that it would increase the deficit outside the 10-year budget window and allowing it to be passed through reconciliation.

But this time around, Senate Republicans are not content with just making the most significant provisions of the tax package temporary. They instead want budget estimators to compare their bill to current policy rather than current law, which would make extending the Trump tax provisions appear to have no cost and therefore no effect on the deficit that would violate the reconciliation rules.

But no matter how much the Senate leadership bends the rules to make their tax cuts palatable on paper, the actual cost – and impact on the deficit – is largely the same when using a current policy baseline. In other words, it’s a move designed to hide the true cost of tax cuts while greasing the political wheels for a reckless bill to be passed.

The fate of the EV tax credits depends on the GOP’s megabill

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The future of the American auto industry — and what’s parked in your driveway — could be shaped by negotiations on Capitol Hill right now.

That’s because the version of what President Trump calls the “big, beautiful bill” that was passed by the House of Representatives last month includes sharp cuts to the tax credits designed to incentivize EV purchases.

President Joe Biden promoted a suite of policies meant to cut carbon emissions by boosting EV sales. That includes “sticks,” like regulations that effectively require companies to build more EVs, as well as “carrots,” the federal subsidies that sweetened the deal by providing financial incentives (to both car companies and buyers) to pivot toward battery-powered vehicles.

Trump has long signaled a desire to roll all of them back.

The House version of the bill, if it’s embraced by the Senate, would bring a cleaver down on a great big pile of those carrots. That would affect new car buyers as soon as next year — and could reshape which cars are available on the market far into the future.

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Consumer tax credits would phase out soon

Under the bill passed by the House , the consumer tax credit for new electric vehicles ( worth up to $7,500 ) would phase out after 2026. But for most vehicles, it would actually become unavailable at the end of 2025, because it would only be available for vehicles made by automakers that have sold fewer than 200,000 EVs. (That’s a return to how the tax credit was structured before the Biden administration.)

Meanwhile, the tax credit for used vehicles — which was created as part of the Inflation Reduction Act, Democrats’ major climate law during the Biden administration — would be eliminated outright at the end of 2025. That credit was designed to expand the availability of EVs to middle- and lower-income families, addressing a longstanding critique of the tax credit: That it only helped well-off new car buyers. That credit is worth up to $4,000.

Tax credits that incentivize battery manufacturing would not be phased out as swiftly, but companies trying to claim them would face tighter restrictions on Chinese-made components and working with Chinese partner companies, which could make them more challenging to qualify for.

The legislation would also add a new $250 annual fee for EV drivers, imposed by the Federal Highway Administration. Such fees are hypothetically meant to correct for the fact that EV drivers don’t pay gas taxes. However, Consumer Reports has calculated that the proposed fee is more than three times what a typical driver of a new gas-powered car pays in gas tax.

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Republicans have long chafed at EV incentives

Many Republicans objected to the EV tax incentives passed as part of the IRA, declaring them wasteful spending. They’ve also argued that markets should determine which vehicles Americans drive, without the government incentivizing electric motors over engines.

Historically, the tax credits were critiqued for primarily helping wealthier car buyers. And that’s true: New cars, and especially new EVs, are so expensive that they’re out of reach for most Americans. But the IRA attempted to deal with that, both by adding income caps that kept wealthier people from qualifying, and creating the used vehicle credit, which brought cheaper cars into the mix.

Meanwhile, supporters of the credit say that Republicans have a different reason to eliminate these tax credits: The income tax cuts that Trump has promised are expensive. The current version of the bill extends multi-trillion cuts passed in 2017 .

“That money’s going to come from somewhere,” says Levi McAllister, a partner at the law firm Morgan Lewis who advises companies on a range of topics related to electric vehicles. The EV tax credit, he says, is “certainly a ripe target.”

Democrats in Congress have critiqued the Republican tax and spending package as being designed to benefit billionaires . The package overall helps the richest Americans and hurts the poorest, according to an analysis by the Congressional Budget Office .

Automakers brace for policy upheaval

Automakers knew that Trump’s election would bring huge changes to EV policy. And many major carmakers support the push to pause or weaken regulations, pointing to weaker-than-expected consumer demand for zero-emission vehicles. But at the same time, they have warned that pulling subsidies and tax credits would only exacerbate a vehicle affordability problem, and put some manufacturing investments at risk.

It’s easier to say goodbye to a stick than a carrot.

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In a letter to Trump last fall, the U.S. trade group representing major automakers urged the incoming White House to “preserve auto-related provisions in the current tax code,” arguing they “have fueled investment in domestic EV and battery manufacturing and increased good-paying jobs in automotive communities.”

It’s also challenging for the auto industry to make a rapid U-turn on EV production, when decisions about factories and vehicle designs have to be made years in advance.

U.S. jobs on the line

Some advocacy groups are still holding out hope that senators will preserve at least some of the IRA clean energy credits to bolster U.S. jobs — if not for the sake of climate change.

Those credits have incentivized billions of dollars’ worth of new manufacturing projects, and most of the money, projects and jobs have gone to Republican-leaning districts. That’s true for clean energy projects overall, and for EV-related jobs specifically .

Companies and advocacy groups alike have leaned heavily on the job implications when lobbying to keep these credits. “It’s now up to the Senate to fix this big, ugly mess of a bill,” Bob Keefe, the executive director of the nonpartisan, pro-environment business group E2, wrote in a statement in May. “With more than 400 major clean energy projects and our energy future hanging in the balance, we hope they’ll put their constituents ahead of politics and make America great through action, not words.”

McAllister says that while many EV makers and related companies had hoped that the jobs argument would protect the credits, they’re not counting on it. “I think companies are finally starting to say, ‘Hey, for us to plan, we need to assume all of this, all of it’s going away,'” he says.

A rocky road ahead

Eliminating incentives could dramatically affect the pace of EV adoption. One Princeton study estimated that if the tax credits are repealed and federal emissions regulations are cut, as the White House has signaled it also plans to do, sales of EVs in 2030 could be 40% lower than they would have been if the existing policies stay in place.

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From a business perspective, that would slow the timeline for factory expansions and make it more challenging for American automakers to compete with Chinese companies’ EV innovations . And it would slow progress toward cutting transportation-related emissions, a key part of plans to reduce the damage caused by climate change.

But nobody expects this bill, if passed, to signal the end of the electric vehicle market in the U.S.

Companies started to invest in EVs before the IRA was passed, and they will keep investing in them. There’s a small but committed market for them now, and companies believe better batteries and cheaper vehicles will win over new fans.

What’s in Trump’s big tax and spending bill that passed Congress and will soon become law

Republicans muscled President Donald Trump’s tax and spending cut bill through the House on Thursday, the final step necessary to get the bill to his desk by the GOP’s self-imposed deadline of July 4th.

At nearly 900 pages, the legislation is a sprawling collection of tax breaks, spending cuts and other Republican priorities, including new money for national defense and deportations.

Democrats united against the legislation, but were powerless to stop it as long as Republicans stayed united. The Senate passed the bill, with Vice President JD Vance casting the tiebreaking vote. The House passed an earlier iteration of the bill in May with just one vote to spare. It passed the final version 218-214.

Here’s the latest on what’s in the bill.

Tax cuts are the priority

Republicans say the bill is crucial because there would be a massive tax increase after December when tax breaks from Trump’s first term expire. The legislation contains about $4.5 trillion in tax cuts.

The existing tax rates and brackets would become permanent under the bill, solidifying the tax cuts approved in Trump’s first term.

It temporarily would add new tax deductions on tip, overtime and auto loans. There’s also a $6,000 deduction for older adults who earn no more than $75,000 a year, a nod to his pledge to end taxes on Social Security benefits.

It would boost the $2,000 child tax credit to $2,200. Millions of families at lower income levels would not get the full credit.

A cap on state and local deductions, called SALT, would quadruple to $40,000 for five years. It’s a provision important to New York and other high tax states, though the House wanted it to last for 10 years.

There are scores of business-related tax cuts, including allowing businesses to immediately write off 100% of the cost of equipment and research. Proponents say this will boost economic growth.

The wealthiest households would see a $12,000 increase from the legislation, and the bill would cost the poorest people $1,600 a year, mainly due to reductions in Medicaid and food aid, according to the nonpartisan Congressional Budget Office analysis of the House’s version.

Money for deportations, a border wall and the Golden Dome

The bill would provide some $350 billion for Trump’s border and national security agenda, including for the U.S.-Mexico border wall and for 100,000 migrant detention facility beds, as he aims to fulfill his promise of the largest mass deportation operation in U.S. history.

Money would go for hiring 10,000 new Immigration and Customs Enforcement officers, with $10,000 signing bonuses and a surge of Border Patrol officers, as well. The goal is to deport some 1 million people per year.

To help pay for it, immigrants would face various new fees, including when seeking asylum protections.

For the Pentagon, the bill would provide billions for ship building, munitions systems, and quality of life measures for servicemen and women, as well as $25 billion for the development of the Golden Dome missile defense system. The Defense Department would have $1 billion for border security.

How to pay for it? Cuts to Medicaid and other programs

To help partly offset the lost tax revenue and new spending, Republicans aim to cut back on Medicaid and food assistance for people below the poverty line .

Republicans argue they are trying to rightsize the safety net programs for the population they were initially designed to serve, mainly pregnant women, the disabled and children, and root out what they describe as waste, fraud and abuse.

The package includes new 80-hour-a-month work requirements for many adults receiving Medicaid and food stamps, including older people up to age 65. Parents of children 14 and older would have to meet the program’s work requirements.

There’s also a proposed new $35 co-payment that can be charged to patients using Medicaid services.

More than 71 million people rely on Medicaid, which expanded under Obama’s Affordable Care Act, and 40 million use the Supplemental Nutrition Assistance Program. Most already work, according to analysts.

The Congressional Budget Office estimates that 11.8 million more Americans would become uninsured by 2034 if the bill became law and 3 million more would not qualify for food stamps, also known as SNAP benefits.

Republicans are looking to have states pick up some of the cost for SNAP benefits. Currently, the federal government funds all benefit costs. Under the bill, states beginning in 2028 will be required to contribute a set percentage of those costs if their payment error rate exceeds 6%. Payment errors include both underpayments and overpayments.

But the Senate bill temporarily delays the start date of that cost-sharing for states with the highest SNAP error rates. Alaska has the highest error rate in the nation at nearly 25%, according to Department of Agriculture data. Sen. Lisa Murkowski, R-Alaska, had fought for the exception. She was a decisive vote in getting the bill through the Senate.

A ‘death sentence’ for clean energy?

Republicans are proposing to dramatically roll back tax breaks designed to boost clean energy projects fueled by renewable sources such as energy and wind. The tax breaks were a central component of President Joe Biden’s 2022 landmark bill focused on addressing climate change and lowering health care costs.

Democratic Oregon Sen. Ron Wyden went so far as to call the GOP provisions a “death sentence for America’s wind and solar industries and an inevitable hike in utility bills.”

A tax break for people who buy new or used electric vehicles would expire on Sept. 30 of this year, instead of at the end of 2032 under current law.

Meanwhile, a tax credit for the production of critical materials will be expanded to include metallurgical coal used in steelmaking.

Trump savings accounts and so, so much more

A number of extra provisions reflect other GOP priorities.

The bill creates a new children’s savings program, called Trump Accounts, with a potential $1,000 deposit from the Treasury.

The Senate provided $40 million to establish Trump’s long-sought “National Garden of American Heroes.”

There’s a new excise tax on university endowments and a new tax on remittances, or transfers of money that people in the U.S. send abroad. The tax is equal to 1% of the transfer.

A $200 tax on gun silencers and short-barreled rifles and shotguns was eliminated.

One provision bars for one year Medicaid payments to family planning providers that provide abortions, namely Planned Parenthood.

Another section expands the Radiation Exposure Compensation Act, a hard-fought provision from GOP Sen. Josh Hawley of Missouri, for those impacted by nuclear development and testing.

Billions would go for the Artemis moon mission and for the exploration of Mars, while $88 million is earmarked for a pandemic response accountability committee.

Additionally, a provision would increase the nation’s debt limit, by $5 trillion, to allow continued borrowing to pay already accrued bills.

Last-minute changes

The Senate overwhelmingly revolted against a proposal meant to deter states from regulating artificial intelligence. Republican governors across the country asked for the moratorium to be removed and the Senate voted to do so with a resounding 99-1 vote.

A provision was thrown in at the final hours that will provide $10 billion annually to rural hospitals for five years, or $50 billion in total. The Senate bill had originally provided $25 billion for the program, but that number was upped to win over holdout GOP senators and a coalition of House Republicans warning that reduced Medicaid provider taxes would hurt rural hospitals.

The amended bill also stripped out a new tax on wind and solar projects that use a certain percentage of components from China.

What’s the final cost?

Altogether, the Congressional Budget Office projects that the bill would increase federal deficits over the next 10 years by nearly $3.3 trillion from 2025 to 2034.

Or not, depending on how one does the math.

Senate Republicans are proposing a unique strategy of not counting the existing tax breaks as a new cost because those breaks are already “current policy.” Republican senators say the Senate Budget Committee chairman has the authority to set the baseline for the preferred approach.

Under the alternative Senate GOP view, the bill would reduce deficits by almost half a trillion dollars over the coming decade, the CBO said.

Democrats say this is “magic math” that obscures the true costs of the tax breaks. Some nonpartisan groups worried about the country’s fiscal trajectory are siding with Democrats in that regard. The Committee for a Responsible Federal Budget says Senate Republicans were employing an “accounting gimmick that would make Enron executives blush.”

Summary

Companies Passes in a knife-edge 215-214 vote, two Republicans vote no, one falls asleep

Would add $3.8 trillion to the US debt, stirring investor concern

Would cut green-energy incentives, fund Trump deportation push

WASHINGTON, May 22 (Reuters) – The Republican-controlled U.S. House of Representatives on Thursday passed a sweeping tax and spending bill that would enact much of President Donald Trump ‘s policy agenda and saddle the country with trillions of dollars more in debt.

The bill, passed by a single-vote margin, would fulfill many of Trump ‘s populist campaign pledges , delivering new tax breaks on tips and car loans and boosting spending on the military and border enforcement.

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It will add about $3.8 trillion to the federal government’s $36.2 trillion in debt over the next decade, according to the nonpartisan Congressional Budget Office.

“This is arguably the most significant piece of Legislation that will ever be signed in the History of our Country!” Trump wrote on social media.

The package passed in a 215-214 vote after a marathon push that kept lawmakers debating the bill through two successive nights.

All of the chamber’s Democrats and two Republicans voted against it, while a third Republican voted “present”, neither for nor against the bill. Another Republican missed the vote because he had fallen asleep.

With a narrow 220-212 majority, House Speaker Mike Johnson could not afford to lose more than a handful of votes from his side, and he made several last-minute changes to satisfy various Republican factions.

“The House has passed generational, truly nation-shaping legislation,” Johnson said.

What Trump has dubbed a “big, beautiful bill” now heads to the Senate, which Republicans control by a 53-47 margin.

Several said they would seek substantial changes over what is likely to be weeks of debate. “Senators are going to want to put their own imprint on it,” said Republican Senator Josh Hawley of Missouri.

The 1,100-page bill would extend corporate and individual tax cuts passed in 2017 during Trump’s first term in office, cancel many green-energy incentives passed by Democratic former President Joe Biden and tighten eligibility for health and food programs for the poor.

It also would fund Trump’s crackdown on immigration, adding tens of thousands of border guards and creating the capacity to deport up to 1 million people each year. Regulations on firearm silencers would be loosened.

Democrats blasted the bill as disproportionately benefiting the wealthy while cutting benefits for working Americans. The CBO found it would reduce income for the poorest 10% of U.S. households and boost income for the top 10%.

“This bill is a scam, a tax scam designed to steal from you, the American people, and give to Trump’s millionaire and billionaire friends,” Democratic Representative Jim McGovern said.

Item 1 of 3 U.S. House Speaker Mike Johnson (R-LA) speaks to the press, as he leaves for a meeting at the White House on the budget, on the day of the House Rules Committee’s hearing on U.S. President Donald Trump’s plan for extensive tax cuts, on Capitol Hill, in Washington, D.C., U.S., May 21, 2025. REUTERS/Nathan Howard [1/3] U.S. House Speaker Mike Johnson (R-LA) speaks to the press, as he leaves for a meeting at the White House on the budget, on the day of the House Rules Committee’s hearing on U.S. President Donald Trump’s plan for extensive tax cuts, on Capitol Hill, in Washington, D.C., U.S., May 21, 2025…. Purchase Licensing Rights , opens new tab Read more

The bill passed despite growing concerns over the U.S. debt, which has reached 124% of GDP, prompting a downgrade of the United States’ top-notch credit rating by Moody’s last week.

The U.S. government has recorded budget deficits every year of this century, as Republican and Democratic administrations alike have failed to bring spending into alignment with revenue.

Interest payments accounted for 1 out of every 8 dollars spent by the U.S. government last year, more than the amount spent on the military, according to the CBO. That share is due to grow to 1 out of every 6 dollars over the next 10 years as an aging population pushes up the government’s health and pension costs, even if Trump’s budget bill is not taken into account.

‘SETTING A COURSE FOR THE ICEBERG’

Investors, unnerved by the country’s worsening fiscal position and Trump’s erratic tariff moves, have been selling off U.S. assets that make up the bedrock of the global financial system. The dollar has fallen more than 10% since January while yields on 30-year Treasury bonds, a proxy for long-term U.S. government borrowing costs, have reached their highest level since October 2023.

U.S. stock indexes were little changed on Thursday. Solar energy stocks that benefit from green-energy subsidies targeted by the bill were especially hard hit.

“We’re not rearranging deck chairs on the Titanic tonight. We’re putting coal in the boiler and setting a course for the iceberg,” said Representative Thomas Massie of Kentucky, one of the two Republicans to vote against the bill.

The growing debt has paradoxically given urgency for Republicans to pass the bill, as it would raise the federal government’s debt ceiling by $4 trillion. That would avert the prospect of a default, which officials have warned could otherwise come sometime this summer.

Republicans have also argued that failure to pass the bill would mean an effective tax hike for many Americans, as Trump’s 2017 tax cuts are due to expire at the end of the year.

Hardliners on the party’s right flank had pushed for deeper spending cuts to lessen the budget impact, but they met resistance from centrists who worried that would fall too heavily on the 71 million low-income Americans enrolled in the Medicaid health program.

Johnson made changes to address conservatives’ concerns, pulling forward new work requirements for Medicaid recipients to take effect at the end of 2026, two years earlier than before. That would kick several million people off the program, according to the CBO. The bill also would penalize states that expand Medicaid in the future.

Johnson also expanded a deduction for state and local tax payments, which was a priority for a handful of centrist Republicans who represent high-tax states like New York and California. The new limit of $40,000 would overwhelmingly benefit the wealthiest households, according to the nonpartisan Committee for a Responsible Federal Budget.

Republicans also changed the name of the bill’s tax-free savings accounts for children to “Trump Accounts”.

Reporting by David Morgan, Bo Erickson and Andy Sullivan, additional reporting by Li Gu in Shanghai and Selena Li in Hong Kong; writing by Andy Sullivan, Editing by Scott Malone, Toby Chopra and Alistair Bell

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Key Takeaways A tax-advantaged savings account called a MAGA account is included in the current tax bill being discussed in Congress.

Over the next four years, the Treasury Department would fund the proposed MAGA accounts with $1,000 for newborns, and account funds would grow tax-deferred.

A separate Republican bill to create a universal savings account (USA) was introduced in early May.

Any adult citizen could open a USA, which would feature tax-free distributions you could use at any time, for any reason.

The MAGA account might be an alternative to a 529 savings account, while the USA most closely resembles a Roth IRA, but with fewer restrictions. Either could also be used in addition to current offerings.

Two Republican proposals could change the way consumers save money, with both providing tax incentives to encourage people to save more. The main opposition to these proposals is that they would increase federal spending and help wealthy people more than those with low or moderate incomes.

The current GOP budget bill that is being ironed out includes a proposed “money account for growth and advancement” (MAGA) account. The Treasury Department would contribute a $1,000 deposit for every baby born between 2025 and 2028 whose parents have Social Security numbers. Friends, family, employers, governments, and nonprofit groups could contribute up to $5,000 a year, and the money in the account could be invested in stocks.

The money could be withdrawn after the child reaches age 18 and, if used for qualified expenses, any earnings would get a tax break. Qualified expenses include education, starting a business, or buying a home.

The tax benefits are still being discussed. A committee summary of the bill says disbursements for qualified expenses would be taxed as long-term capital gains, a rate that is lower than ordinary income tax rates. The full House plan says the funds would not be subject to taxation at all. Either way, withdrawals for non-qualified expenses would be subject to ordinary income tax.

Parents could also open an account for children under the age of eight, but only newborns would get the $1,000 deposit from the federal government.

The beneficiary could withdraw half of the money between the ages of 18 and 25 for qualified expenses, with the other half becoming available for these expenses at age 25. The money could be used for any purpose after the account holder turns 30.

MAGA Accounts vs. 529 Savings Accounts

Parents can already contribute to tax-advantaged education accounts for their children, known as 529 accounts. Details vary by state, but if the funds are used for qualified education expenses, the money grows and can be withdrawn tax-free.

Some states also offer other tax deductions and credits for educational expenses. For instance, Colorado provides a $118 contribution to 529 accounts for newborns and matches up to $500 a year of contributions during the first five years of the account.

Parents wouldn’t need to choose between a 529 account or a MAGA account. They could contribute to both, or simply manage investments for the MAGA account to maximize its growth.

Universal Savings Accounts (USAs)

A separate proposed savings plan—called a universal savings account (USA)—would offer tax-advantaged savings to all citizens, not just parents. Sen. Ted Cruz (R-Texas) announced the USA bill on May 1, 2025, along with companion legislation introduced in the House of Representatives by Rep. Diana Harshbarger (R-Tenn.)

This account most closely resembles a Roth IRA, but with fewer restrictions. Roth IRAs let you save earned income up to a certain amount every year ($7,000 for 2025, or $8,000 if you’re 50 or older). The contributions are taxable, but the money grows tax-free and can be withdrawn after age 59 ½ without taxes or penalties. If you withdraw before then, you may be subject to a 10% tax penalty.

But you can only contribute to a Roth IRA if your income is below a certain amount ($165,000 for single tax filers in 2025, with the allowed contribution reduced for people who make at least $150,000). The proposed USA option does not limit contributions based on income, and it offers tax-free distributions. The universal savings account would allow an initial deposit of up to $10,000, with contribution increases of $500 per year, up to a $25,000 annual limit.

Supporters of the USA bill cite the restrictions on current tax-advantaged savings accounts such as Roth IRAs and 401(k)s, which may not be accessible before retirement or have complex rules and usage limitations. They say USA plans may increase participation in long-term savings, while freeing funds for short-term needs—like education and health care—without forcing account holders to pay early withdrawal penalties.

But opponents of USAs argue that such plans would mostly benefit the wealthy and could reduce federal revenue. Commenting on an earlier USA proposal, the nonpartisan Center on Budget and Policy Priorities said initially, federal revenue could increase as 401(k) and IRA account holders, who enjoy tax-deferred benefits, switch to USAs, which are funded with after-tax dollars. But without taxes on withdrawals, revenue could later fall. In other words, the longer investors enjoy the tax advantages of a USA plan, the more the federal government will be deprived of tax revenue.

The Center also said studies show that tax subsidies do not increase overall savings rates. In fact, because the USA could make it easier to withdraw funds at any time and for any purpose, savings rates could actually fall, it says.

Better Than a Roth IRA?

Roth IRAs are a popular retirement plan choice, particularly for low- to moderate-income households. They’re designed as a retirement investment vehicle. As such, federal tax laws impose penalties on withdrawals before age 59 ½, unless you meet certain exception requirements. While Roth IRAs have advantages, USAs may offer a more hassle-free way to invest for retirement or for shorter-term savings goals.