As has been discussed on this blog (here, here and here) and on many others in recent weeks, US unemployment has increased to about 9% and American families are really being affected by the recession. The job cuts are particularly affecting middle income Americans: those who prior to the crisis believed they had relatively stable jobs making good money, were out in the market buying homes and other goods and making regular contributions to their 401k's (with their employers matching these contributions) and other retirement accounts.
- ► 2012 (129)
- ► 2011 (365)
- ► 2010 (478)
- Altering Incentives
- Altering Incentives
- Cap, Coerce, and Then Trade
- The Other Coup
- Holy Smokes!
- Abolish Agriculture (Committees)
- What the Hell Are the Swedes Doing?
- More on Climate Change (nerdy; skip if you don't l...
- The Hopeless Science?
- Links for the Weekend
- The Economic Costs of Climate Change
- Posner on Financial Regulation
- Defending the Median Voter Theorem
- Has Persiankiwi been silenced?
- Hard Power
- Lessons from Brazil
- Iranian Government Retires Four-Elevenths of the S...
- Not Just Circumstantial Any More
- Roger Cohen from the streets of Iran
- Does Policy Matter for Growth?
- Weekend Links
- Stranger Than Fiction
- Half a League, Half a League, Half a League Onward...
- The Trouble of Rationality
- Easterly on Hayek on the Secret of Development
- Parsing Iran
- More of the Same, Please
- Paul Krugman on the Recession in the EU
- Morning Iran Round-Up
- Quote of the Day
- Fresh Iran Thread
- More on Iran
- G-8 Talks Regulatory Harmonization
- Was the Iranian Election Stolen?
- The Return of the "Decoupling" Myth
- Why Matthew Yglesias Doesn't Understand Internatio...
- Link Dump
- E.U. vs. the U.S.: Gaming the Economic Crisis
- Why Canada Is Better
- Matthew Yglesias Does Not Understand International...
- The Geopolitical Implications of Iran's Election
- What Sort of Regulatory Reform to Expect
- China's Adjustment
- Link Dump
- Lingua Americana
- How to Avoid Unemployment? Move to the O.C.
- Research versus Teaching
- Is Europe Shifting to the Right?
- Paying your debt with shit (literally)
- Saving us From Ourselves
- Angela Merkel seems not to understand what it mean...
- Markets in Everything: Dates edition - 35th of May...
- Obama, Cuba and the OAS
- Microfoundations? We Don't Need No Stinkin' Microf...
- The Power of the Quants.
- One Slice
- I Like Cake (but prefer pie)
- It Was 20 Years Ago Today
- American-style "Socialism"
- A policy idea?
- 221.034 - 1,361.58
- Mmmmm, Cake.
- ▼ June (68)
- ► 2008 (134)
- ► 2007 (142)
Tuesday, June 2, 2009
Posted by Alex Parets at 1:30 AM . Tuesday, June 2, 2009
Seeing as how as an aspiring IR scholar I am already irrelevant, I figure any policy proposals I toss out on this blog won't be taken seriously. Or even if what I say is taken seriously, someone can just take it and run with it since policy makers don't know that I exist. So here is my proposal and my logic.
With the collapse in stock prices over the last year, many Americans have seen the value of their retirement accounts halved and their purchasing power eroded, postponing the planned retirement of many that were on the verge, and adding to worries about retirement options for those hoping that they would be able to retire at some point in the future.
Not only have many Americans seen their retirement savings dwindle, many have also lost their jobs over the past several months. Unable to find a new job, many middle income earners have had to dip into their savings and eat into their 401k accounts to simply make ends meet.
Now, when these people make withdrawals from their 401k accounts, they are subject to a 10% penalty. According to 401k.com, any funds withdrawn before the age of 59½ is subject to an excise tax equal to ten percent of the amount disbursed, including withdrawals to pay expenses due to a hardship. A really simple and efficient way to get more money into the hands of middle income earners who are most likely to spend the money paying bills and covering housing and food costs, would be to suspend the 10% excise tax on all withdrawals made by any person that was unemployed during the previous and/or current fiscal year. The change in policy could be made effective for 6 months at a time and be reviewed depending on the pace of economic recovery.
This simple change in the rules governing 401k withdrawals would provide hundreds of thousands of households with a quick, easy and inexpensive boost in income. The government would not have to pass any new legislation, would not have to print checks and spend money and time mailing them to taxpayers, and the economy would get an immediate boost (either by people taking out more money and spending it or leaving more money in their 401k accounts for use in the short run). Furthermore, this idea would simply allow people to keep their own money, without it having to be in the form of a tax break which would face resistance in Congress and would be difficult to roll back once a recovery begins. Furthermore, I'd guess (without any data whatsoever) that the multiplier effect on the extra 10% in 401k money would be as high or higher than that on tax cuts, rebate checks or other forms of fiscal stimulus.