THIS Is How I Would Negotiate A Stimulus Package
Dear Rich Lifer,
The other day, I went on a bit of a rant about bailouts – including attacks on some of the ideas that lawmakers were considering incorporating into their $2 trillion stimulus package.
Of course, it’s easy to be a critic.
So what would I recommend doing if I were king?
I can offer several ideas off the top of my head.
The first one relates to…
Congress has been considering allowing Americans to withdraw up to $100,000 of the money they have stashed in 401k plans, IRAs, and other tax-sheltered retirement accounts without incurring the usual 10% early withdrawal penalties typically imposed on anyone under the age of 59 ½ (or 55 in the case of 401ks).
Well, I think they should go way further – allowing people to withdraw any amount they like.
Moreover, I think they should not only waive the early withdrawal penalty but also federal income taxes on that money. (If states follow suit, all the better.)
I know, I know.
I’m the guy who’s always telling people to put more money INTO tax-sheltered accounts and keep it there as long as possible.
So why would I have this sudden change of heart?
Because for most people, retirement is a lot farther away than some of the cash crunches being created by this current situation.
This is especially true for self-employed people and small business owners.
Consider someone who owns a successful restaurant and has socked away a substantial amount of money into a retirement account.
Do you think that person would rather keep money in a 401(k) or save his business right now?
Wouldn’t allowing him access to as much of that cash as possible – without subjecting it to penalties or taxes – be the right call for not just him, but his employees, his local economy, and ultimately the same government agencies forgoing the future taxation of his retirement account?
I think so.
And to take the tax argument one step further – I’d much rather see Washington forgo future revenue – much of it decades away – instead of creating a deeper immediate hole from the other stimulus ideas being floated.
What about the idea of liquidating retirement accounts precisely at the worst possible time, after assets have declined in value?
Yeah, that stinks. But again, so does losing your house or your business.
Same answer to anyone who argues that the money will never find its way back into a retirement account again.
This is about giving people maximum financial flexibility with as little impact to American taxpayers as possible.
Basically, it’s a lesser of two evils situation.
We also shouldn’t assume that everyone has all their retirement money in stocks or other assets that have declined substantially in value.
I certainly don’t.
What if I wanted to take some of that money out and invest in a friend’s struggling business? Or a property? Or just blow it on a sports car?
There is no denying the fact that more cash circulating right now is a good thing.
Speaking of which…
Government Checks Should Go to Everyone
Andrew Yang, the presidential candidate arguing for a universal basic income program, understood this concept.
Yes, lower-income Americans – especially those people who have suddenly lost jobs because of this crisis – need the money the most.
At the same time, it’s both faster and fairer to send every single American the same amount.
This is a time for unity not another arbitrary dividing line.
Since it’s almost certain that higher-income Americans will end up bearing more of the payback anyway, why not at least give the impression of equality on the front end?
Moreover, there’s no validity to the idea that what someone earned in any particular year – even this current one — had anything to do with the short-term hardships they might have endured.
Why draw a $150,000 line in the sand?
Is $150,000 the same for someone living in Des Moines as it is for someone in New York City?
Does it mean that the high-income business owner didn’t lose even more income year-over-year?
And why does this particular threshold not even correlate with that magic $250,000 number we usually hear the same politicians defaulting to?
If you’re going to dump money out of helicopters, keep it simple and as indiscriminate as possible.
Require any business bailouts to be tied to taxpayer participation in future upside via debt, equity, preferred shares, convertible securities, and other similar arrangements.
Despite all the issues most of us had with the bank bailouts back in 2009, they ended up making taxpayers money.
According to data from ProPublica, the TARP bailout program netted the U.S. government a $15.3 billion profit.
The Fannie Mae and Freddie Mac bailouts netted $68 billion and $51 billion profits, respectively.
And besides some individual bank failures, only the GM and Chrysler bailouts created net losses ($11.3 billion and $1.2 billion, respectively).
Add it all up and taxpayers made a net profit of $121 billion last time around.
I would urge lawmakers to do the same – or better – this time around.
The fact that we lost money on automakers last time around adds more weight to the argument that we should let airlines and some other businesses deal with their problems through bankruptcy if necessary.
At the very least, let’s run our government money the same way Wall Street would – not handing out free candy but making sure taxpayers are duly compensated for stepping into the breach.
I don’t care if we’re talking about small businesses or large ones.
And please, leave debates about emissions requirements and other tangential issues for another time. This isn’t about imposing new restrictions on businesses out of the blue. It’s about keeping the lights on, the economic damage to a minimum, and a general sense of national cohesion in a challenging time for everyone.
To a richer life,