A positive left alternative to "personal accounts."

[rogerashton]

The reason my students like the idea of personal accounts is that they believe it would give them the opportunity to build up their own wealth in the form of portfolios of stocks and bonds. While this is a sham, and social security never had any such purpose nor is appropriate to it, giving working people opportunities to build up individual wealth accounts is not a bad idea in itself.

Here is what I propose.

First, the tax laws would be amended to provide a TAX CREDIT against individual contributions to a Personal Accumulation Account, (PAA) until the account amounts to 2.5 million dollars and no more (5 million for a married couple). That upper limit would be sufficient for a generous retirement. Funds contributed to the PAA could be withdrawn only for limited purposes, such as retirement and college tuition, for the first twenty years. Thereafter they could be withdrawn for any purpose. If withdrawn before twenty years for a non-approved purpose, the tax credit would be repayable with interest and a modest penalty. Otherwise the PAA's would function like existing defined contribution retirement accounts.

Second, this would be paid for by a tax on net wealth in excess of 2.5 million (5 million for a married couple). For this purpose, net wealth would be defined as the market value of stocks, bonds, real property, and other wealth in the possession of the family, less the principle amount of their indebtedness. Therefore if, for example, you owned exactly 2.5 million in stocks and bonds and had a house and a mortgage, you would pay wealth tax on only the part of the house the bank DOES NOT own. This wealth tax would be proportional and should be sufficient to replace the revenue lost to the tax credits, AND to replace all revenue lost due to reductions of Federal Estate Taxes over the years.

Finally, whatever remains of Estate Taxes would be abolished. The wealth tax would be the only Federal impost on wealth, and would be paid by no-one with less than 2.5 million of net wealth (5 million for a married couple.)

An estate of 2.5 million (or 5 million for a married couple) is chosen because it is just enough to make the person a capitalist -- that is, enough so that the person could live on the income and not have to work for a living. A 2.5 million estate would yield $125000 per year at 5%, and surely a person can live on that! In my judgment, very few working people would ever build their PAA's up to that amount, but if I am wrong and this proposal leads to a classless society of capitalists all with roughly equal estates, that would be splendid.

[BamaLefty]

1. Awesome.

Nominated. :hi:

[Ian David]

2. I don't understand it, but I'm nominating it for smarter peolpe to see it

Although I really think eliminating the Estate Tax is probably a bad idea.

I'd also like to suggest an overhaul of the brokerage fee system.

1) I would like a rule that firms can't charge more than 1% of your portfolio per year in administrative fees if you have less than $1 Million.

2) A fedreal tax credit for stock transaction fees and administrative fees, up to a maximum of $500 per year, for portfolios under $100,000 in value.

I suggest this because my current debt in administrative fees for my brokerage account exceeds the value of my portfolio, mostly because the firm didn't make it clear to me that I would be charged a fee every year even if I didn't make any transactions.

The other reason is because I bought only SpaceHab, SpaceDev, and Interpublic Group, all of which were probably stupid investments.

[rogerashton]

3. Thanks for the vote of confidence!

If it works like existing retirement accounts, the individual could choose the investment vehicle, and smart people who don't want to spend their lives managing their portfolios would put them in index funds (unless they want to punt on something interesting and high-risk like space development.) Management fees for index funds get as low as one-quarter of a percent. a) Hoot, mon, time is money. b) competition might be effective in keeping them down, although there is little evidence of that in the marketplace. So some increase in regulation of brokerage fees, if only for truth in fee-ing. c) This is unlike some proposals for social security "personal accounts" since in those cases the government would guarantee the payout, and perhaps choose the investment vehicle, which would require intensive regulation in the hope of avoiding anther disaster like the looming collapse of the fund that insures corporate defined-banafit plans.

As a person who advised his wife to keep her Enron stock and buy more, "I feel your pain!" Still married, though!

There's not really much to understand, since it is a very sketchy proposal -- but I would be happy to brainstorm here about the details, between working on my project.

[Dora]

4. Very interesting idea

I like it!