Early bird special
This ‘new’ IRA plan is way too familiar
YES,
Senator Inhofe, allowing Americans to dip into their retirement accounts at a reduced tax rate would help the economy and give the Treasury a windfall.
But, no, that idea didn’t originate from the radio show host whom you are crediting.
I got a heads-up from an incensed reader who saw that James Inhofe ( R-Okla.) had written an amendment to the tax reform bill that his party is now reconciling. The amendment would permit people to remove 25 percent of the assets from their retirement accounts and pay a tax rate of just 10 percent — instead of their normal income tax rate plus a 10 percent penalty.
Inhofe named the amendment after the radio guy — which pissed off the reader. I’m not mad that the radio host had the same idea I have been writing about for 13 years — I’m just happy that someone might finally be paying attention.
I’ll only get angry if this becomes a Nobel Prize-worthy idea and The Post and I get cheated out of the honor.
Let me go back to the beginning of my idea.
In 2004, I started tinkering in this column with the idea that allowing people to withdraw money from their IRAs 401(k) and Keogh accounts could be a good way to stimulate the economy.
That spring, I wrote a major article for the Milken Institute Review with economist Walter John Williams. He goes by the name John, and I asked him to write the Milken piece with me because I wanted to make sure I got the economics right.
And I’ve been putting this idea in my column regularly ever since.
Our point was simple. Even though 2004 was a good year for the economy, we foresaw a time when monetary policy (the raising and lowering of interest rates) and fiscal policy (government spending) might be rendered useless in stimulating the economy.
Fiscal and monetary policy made a shaky two-legged stool. What we were proposing was the third leg: permitting people to withdraw money from retirement accounts but only for certain transactions like purchasing a home or buying into a business.
We never suggested that someone should be allowed to tap a retirement account to take a vacation or fix a child’s teeth.
What Inhofe and that ra- dio guy are suggesting is shortsighted because their plan has no restrictions on tapping into retirement savings. Without restrictions, borrowers could end up with too little cash when they need it.
And that will lead to other problems — for example, if folks don’t have the cash needed to retire, they might stick around in the workforce and not free up jobs for the next generation of workers.
Williams and I thought that allowing money to be withdrawn from retirement accounts for real estate purchases and other practical purposes is a good middle ground.
Nevertheless, this “new” plan will likely be very attractive to Republicans who are discussing changes in the tax law.
The biggest problem with the tax reform is that it will increase the federal deficit by $1 trillion to $1.5 trillion over the next decade. Andd that’s on top of the amount the deficit will increase anyway.
But our proposal — now being adopted in some form by Inhofe — would bring hundreds of billions of dollars into the US Treasury. That 10 percent tax that people will pay to withdraw their money will be a boom, especially since the stock market bubble has fattened IRA, 401(k) and Keogh accounts. The US would miss out on getting tax revenue when people hit retirement age and withdraw the money. But we are talking about a major policy change, which can’t be messed up by a little thing like farsightedness. The proposal does one other thing. Until now, the assets growing in retirement accounts have done little to help the economy. People may feel richer if their IRA accounts rise by 12 percent in 2017, but that’s all it is — a good feeling. You can’t buy a house with good feelings. And if you can’t spend your cash, you’re not helping the economy.