On Investing and the Trump Administration Plan to Incentivize It
“As part of a forthcoming package of proposed tax cuts, the White House is considering ways to incentivize U.S. households to invest in the stock market…”
The gist of the plan is this:
”…one of many new tax cuts under consideration, would see a portion of household income treated as tax-free for the purposes of investing outside a traditional 401(k).”
“Money put into the account would be done so on an after-tax basis, and taxed when withdrawn as well; but any accumulation of profits during the investment timeframe, known as capital gains, would not be taxed.”
This sounds vaguely similar to a Roth IRA with the exception that there’s some sort of weird rule about the original money being taxed again after withdrawal?
Okay, so the article goes on to state that the proposal is far from complete or finalized yet. Apparently they’re just floating the idea to see what the reaction is.
As far as I’m concerned, I feel like we need to be able to incentivize people in some way to save their money. There is an economic theory that if savings is incentivized, people will simply hoard their money and the economy will suffer. I don’t believe that to be true, and I believe there are ways to balance the two.
The over reliance on credit spending (in particular in the U.S.) has become something of a national issue. U.S. household debt has soared over the past few years and has reached the highest levels since 2008.
If we utilized proper incentive methods for both eliminating debt (not forgiveness, specifically1) and saving, we could create a stronger economic floor upon which to build.
So, what if we did something like this:
For consumer debt:
A 2-for-1 tax credit on the difference in total consumer debt level based on January 1’s total balance minus December 31’s total balance. If you’re paying off debt, you’re actually helping everyone.
For Incentivized Savings:
If a bank issues a credit card as a product, they must also offer a savings account with an interest rate that is the equivalent to the average interest rate charged for their credit card product.
If you’re going to charge an average of 23% interest to credit card users, your savings account product must also offer 23% interest.
On the latter, I feel like this would cause a few things:
Banks would reduce the amount they charge for credit cards because they wouldn’t want to have to pay that much for savings accounts.
Banks may decide to eliminate credit cards or move them to a separate company to avoid this rule. We would need to account for that possibility.
Banks may stop issuing credit cards to those individuals they’d normally charge the highest rates to. If we are incentivizing savings, and savings grows at a higher rate thanks to this rule, this may not be a problem.
This is just a half-baked thought. Poke some holes in it.