Donald Trump’s political instincts have led him to the brink of a transformative tax plan. He has made the elimination of taxes on overtime pay, tips, and Social Security benefits—three of his signature campaign promises—a top priority in the reconciliation bill that Congress is now moving to pass, though the Social Security reform has taken the form of a deduction. The president intuitively understands that Americans deserve to keep a bigger share of their income. But instead of pursuing one-off exemptions, he should fundamentally rethink how our country taxes people—and what our tax system is designed to achieve.
Trump knows that the less the government takes from your income, the better. His proposals on overtime, tips, and Social Security would give people more of the last share of their money—i.e., the extra hours they work, the extra income they make, or the extra money they make in benefits after they retire. But the better idea is to let people keep the first share of what they earn.
I call this proposal the “right to earn.” The basic concept is that Americans shouldn’t pay federal taxes on the income they make earlier in life. That’s when people are beginning their careers, starting families, saving to buy homes, and building the foundation for a good life. They have a natural desire to provide for themselves and their families—before providing support to the community. Yet income taxes stifle their personal growth and future success by taking money from Americans when they need it most, making it harder for them to put their life on the best financial track.
A “right to earn” tax system would flip the script. Practically, it would let any American who puts a set amount of money—say, a minimum of 15%—in a savings or investment account pay zero federal income taxes. This tax-free income would last for the first 25 years they’re in the workforce—roughly from ages 20 to 45 for most people. At that point, they would start paying federal income taxes, under whatever brackets exist at that point. Americans who don’t save or invest 15% a year would still pay normal income taxes.
This is similar to how America waives taxes on retirement contributions. Today, if you put 10% of your income into a 401k or IRA, that money isn’t taxed. The “right to earn” operates on the same principle, but on a much larger scale, giving you compounding returns that pay off as you age.
This proposal would be a powerful spur to get far more young people working, and working hard, because they’d know that every penny they earn would be federally tax free. That’s also a recipe for a new era of entrepreneurship, since risk-takers would have more money to start and grow small businesses. Nothing would supercharge economic growth like letting younger Americans invest all their money in building for the future.
While some may worry that 25 years of tax-free income would hurt programs like Social Security, that program is already on the brink of bankruptcy. Besides, with “right to earn,” Americans could protect themselves by saving for retirement from the moment they begin working. And the 15% savings threshold actually exceeds how much workers and self-employed people currently pay in Social Security taxes. Under this new system, Americans could have more long-term financial security, not less.
These facts make the “right to earn” a much more attractive idea than the “universal basic income” that much of the right (and nearly all the left) is flirting with. That policy is premised on the belief that government should provide everyone with a set amount of money, but that would inevitably undermine work and entrepreneurial initiative. A universal basic income is ultimately grounded in the idea that someone isn’t capable of much and needs to be taken care of by government. By contrast, the “right to earn” reflects a deep belief that people can earn more through their own efforts than government could possibly provide, once they’re given the encouragement.
A “right to earn” tax system is a heavy political lift. It’s also a heavy practical lift, requiring significant legwork to implement a new taxation system in the least disruptive way. That’s why it has no chance of happening in Congress’s upcoming reconciliation bill. But Donald Trump gets at least one more such bill in the next year and a half. As soon as the first bill passes, he and his entire administration should begin laying the groundwork for this bigger, bolder, better idea. It would dramatically expand—and improve—on the tax-free ideas that Congress is already set to pass at the president’s behest.
Donald Trump is onto something: Americans should get more of their income tax free. Now he needs to make that vision a reality in ways that empower the next generation to transform their lives—and our country.
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