Saturday, September 5, 2009

Finally, Something Good From The Government: An Attempt To Encourage Savings

I did not think this was going to happen but we finally have the first bona fide attempt by the current US government to encourage savings. Unless you have not been in the country, every other government initiative has been designed to discourage savings: homebuyer credit, appliance credit, car credit, on top of a non-stop government borrowing and spending. This, of course, is not the way to go.

The new proposals are very weak but I find them encouraging as they are finally a step in the right direction. They are:
- Easier automatic enrollment in 401(k) programs
- Easier automatic contribution increases in those
- Option to get the tax return as a savings bond
- Option to direct unused vacation pay upon termination into a savings plan

These are minuscule steps in the right direction. My proposals (not that I am running for office) are more substantial:
- Credibly engage in an honest money policy as inflation discourages savings
- Raise interest rates to a point where there is actually an incentive to save
- Go all the way, repeal the income tax and introduce a national sales tax
- Cancel all spending subsidies immediately, including mortgage interest deductions
- Double the 401(k) limits and make the IRA limits equal to the 401(k) limits
- Do away with income limits on tax-advantaged plans
- Mandatory automatic enrollment in a LifeCycle-type fund
- Lower 401(k) and IRA fees across the board (i.e. close to matching Vangurad's mutual fund expense ratios)
- Mandatory trailing stop-loss orders on all equity funds in retirement accounts

There are many more things but these are my major ideas. I think the savings bond tax return will be a fail because people often count on the "check" to make ends meet, and US savings bonds pay pitiful interest.

I commented earlier on Obama's disastrous personal finances. Here is a good run-down. Both are out-of-control spenders making over $250k regularly, and yet having practically no interest income. Constant refinancings helped them spend $80k more than they made by these estimates, until the book royalties kick in and Michelle gets a super-important, high-paying job that is then eliminated once she leaves. In addition, I do think Obama is innumerate - like most elected representatives- as I shared in the same entry. Here is a quote illustrating this from the NYDN article:

"Obama did make a feeble attempt to control spending when he announced that his cabinet had found ways to reduce federal spending by $100 million. But this is laughable. Compared to an estimated $3.6 trillion federal budget, it is a minuscule 0.0028%.

To put this into the context of the Obamas' income for 2004 of $207,647, this savings works out to $5.77, or about the price of an arugula salad."

Emphasis mine. So, in my view, POTUS is both innumerate and does not value savings; consequently we have multi-trillion dollars deficits as far as the eye can see and weak proposals to encourage savings.

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