5K for a baby?!!!, I’m sorry, matching retirement funds?!!
(No Ratings Yet)I took some time before I put up this post since I wanted to see how this story would do. Well, Hillary Clinton finally stated that she was no longer wanted to give each newborn 5 grand. Now she wants federal matching funds for savings.
Under policy, Americans who open up a 401K and put up to 5,000 grand annually and the federal government will “[match] refundable tax credit—dollar for dollar—for the first $1,000 of savings done by every married couple making up to $60,000 a year”.
This of course will cost the same annually as the baby bonds would’ve been. Now it is aimed for married couples as of now.
The sad thing is this will be paid for by implementing a higher death, I mean, estate tax. So, to encourage savings, we will discourage people to save for their children or their inheritants because they will pay a higher tax to encourage others to save.
Sometimes, presidential candidates will say anything for a vote or fundraising money and this unfortunately is one of them.
Below is my other comments on the now defunct baby bonds:
Hillary Clinton today suggested that the U.S. give each newborn $5,000. This fund can be used for college, a down payment for the house, or maybe a way to pay for her health insurance.
The math is this: 5,000 x 4,000,000 = $20,000,000,000 per year. Of course, add that for a couple of years. By year 5, it will have cost the U.S. over a trillion dollars. Plus, those babies are approx.
Now there was no formal policy regarding this nor any plan on the specifics.
This is the best part of the plan since interests hasn’t put in their input. Like, taking out funds early for clothes or medical expenditures and also making this retroactive. Why should someone born on Jan. 1, 2010 get a bond while someone born on Dec. 31, 2009 doesn’t.
Still, it is amazing how these presidential candidates will say anything for a vote or fundraising money.
on October 13th, 2007 at 2:48 pm
I have to admit that I expected something far crazier than that from Hillary Clinton. After reading an analysis of the policy, I actually found myself thinking “wow, what a good idea”. It seems that Sen. Clinton wants to use government incentives to encourage low and middle income people to set money aside for their retirement. I like this plan for two reasons:
In an economy fueled by foreign dollars, savings, especially long-term savings by Americans is vital for the stability of our currency. Considering Americans are saving at Great Depression Era levels, I see savings of virtually any kind, as a positive. No country has ever maintained prosperity by indebting itself to another.
If you are at all interested in fixing social security, (i.e. receiving something better than negative interest) then I do not see why personal saving accounts are a bad idea. Ironically, this plan has more flexibility than the Personal Savings Accounts, which George W. Bush proposed.
Now as to the negatives of death/estate tax, I can think of far worse ways to spend money than giving people up to 1000 matching funds to invest into 401ks. So let me ask, why don’t you like this policy? Because it is Hillary Clinton’s, government involvement, or because you are a supply-sider who doesn’t like savings? What other way would you transition from the current SS system to individual pension plans?
on October 16th, 2007 at 2:19 pm
Well I’m not Manny, but I’ll try to provide the counter-argument to Hillary. First off, I think the funding source is the area that starts the controversy. The estate tax is simply unfair, it is a double jeopardy on one’s income, and in the end it further complicates a tax process full of loopholes and earmarks that needs to be streamlined, not expanded. Further, as a result of the convoluted tax code, estate taxes tend to discriminate against victims of unexpected tragedy, and those at the lower end of the exemption, many of whom are small business owners. There is also good reason to suggest that estate taxes, complete with all their rules and exemptions, actually reduce overall tax revenue, by removing incentives to build wealth beyond the exemption level and increasing incentives for tax-shielding activities like charitable donations and familial bequethment, which might not always be a bad thing, but in the end suggests that the funding for Hillary’s plan would ultimately be taken from the general taxpaying pool and not solely, as she’d like us to think, from rich people’s estates. I’ll get to why that is a bad thing shortly… Imagine how many internet bubble millionaires will retire and stop generating taxable wealth and beneficial innovation simply in reaction to these exorbitant tax rates. If you were financially set for life, would you really bother to work at near the same intensity to expand that wealth beyond the $3.5 million dollar limit, knowing that for every extra dollar you earned more than half would be taken by the government?
So if we eliminate the estate/inheritance/death tax as a possible funding source, or understand that its implementation robs from overall revenue, I’m not sure where you head next. Especially since Hillary’s plan is essentially a subsidy for the middle class, and thus a relative burden on anyone that is unable to afford setting aside part of their earnings every month or year. As the article you linked to (though the link is half broken) suggests, 45% of those making under $30,000 a year spend more money than they make, and I really don’t think that matching $1000 worth, or any number for that matter, is going to inspire them to change what is either poor consumption habits, an entreprenuerial lifestyle, or an earning power that cannot sufficiently meet all their needs. Thus by matching middle class investment you are putting a weighty yoke onto the lower classes, and others who need the continual use of their capital: single-earner families, and the self-employed. Additionally, since the matching rate equates to a 100% return on deposits (albeit a somewhat differed return,) you very well could see people, mostly from the $45K-$100K set, saving money as a substitute for more productive investment, which would draw money out of more beneficial revenue-generating investments, like real estate and community improvements, as well as more speculative or irregular securities trading and other forms of venture capitalism, including investing in the future of one’s family. All this, in turn, works to slow economic growth and reduce overall tax revenue further, which hits the hardest on the very people that Hillary is trying to help. In short, this plan grossly perverts the investment marketplace, and would almost surely lose in compounding disincentives to growth, far more than it would gain in long-term personal savings for a small subset of Americans.
Is it really the government’s place to play daddy on this one? Should government step in and provide an incentive to invest in one way, giving these plans a government-funded edge over all other forms of investment? Is it fair to the self-employed who invest their whole net worth, and often times more than that, in their businesses, or to poor families that use all their expendable income to provide for a brighter future for their children? The answer to all these questions is a loud, resounding “NO!”
So to answer your questions: I don’t like this plan, not because it is Hillary’s, or even simply because it is government involvement, nor am I a “supply-sider who doesn’t like savings.” I reject this plan because it is financially unsound, and will hurt many of the very people it aims to help.
What alternative ways would I transition from the current SS system? Of course this is a complicated question, which requires a complicated response, so I will try my best: First, by eliminating the IRS and moving towards a consumption based tax. Second, by bringing government spending back in line with revenues, eliminating earmarks, and ending the Federal Reserve’s manipulations of a fiat money supply that creates the most oppressive tax to middle and lower class Americans, the inflation tax. And finally, by eliminating income tax withholding, and reducing the overall tax burden, to generally allow individuals more control over the allocation of their money so they can ensure that it is used to best suit their individual needs in both the short and the long-term. All of these steps will not only better provide for Americans before and after they reach retirement, but will certainly do more for a stable dollar than anything Hillary has ever proposed.