finance blog, financial, Investing, money

Bailout for the rest of us

I was amused to hear that even the porn kings are asking for a bailout, if only in jest.  I’ve gotten a lot of feedback about my original bailout blog, and the feedback has been fairly consistent:

  • Thumbs down on general stimulus and tax-loss deductibility changes.
  • Thumbs up on the interest and stocks proposals (for the “average Joe”).
  • Suggestions for real, meaningful infrastructure improvements.

I’ve already addressed the infrastructure feedback, to a degree, in a green power blog article.    I’d like to expound on the ideas that got  good feedback and traction:

  1. Make the first $2500 of interest earned in FDIC-insured vehicles (e.g. savings accounts) in 2009 exempt from federal tax.
  2. U.S. Stocks (including ETFs) purchased in 2009 and held for over 18 months would be exempt from capital gains up to $20,000.  Additionally, after 12 months, dividends on such stocks would be tax-free up to $2500 per year… indefinitely.

Idea #1 was the most popular.  In particular readers seems to really like the middle-class and low-income appeal of the idea.  For example seniors commonly have literally some money in the bank.  In addition to Social Security, they common rely heavily on interest income.  A $2500/year break on interest would be very helpful to seniors.

Similarly idea #1 would be, perhaps, the most realistic investment incentive for low-income people.   The are many more low-income people with savings accounts than stock portfolios.  It is easy to open a bank savings account with $100, and sometimes even $10.   And while there are many “unbanked” low-income earners, there are many more who do use banks or credit unions.   Further, since the first $2500 of interest would be tax free there is less risk of an April 15th-surprise lurking around the corner come tax season.

Idea #1 would, of course, benefit the middle class.  With inflation eating away at the value of our hard-earned dollars every year, why should we have to pay taxes on our meager interest incomes as well?  Getting rid of this insult-to-injury tax on the first $2500 of interest income would be a godsend.

Idea #2 is also very middle-class friendly… at least for the investing class.  If part of the government’s goal is to bolster the stock market, I cannot think of a more powerful way to realistically achieve such a result.  I could invision a veritable surge of stock buying with the one-time lure of tax-free dividends for life (up to $2500/year) and the prospect of up to $20,000 of tax-free capital gains.  Sure the capital gains paperwork for the 1040 would be a bit messy… but more much more so than it already is.  And the the dividend paperwork… that would be easy.

So, Congress, and President-elect Obama, I urge you to consider these common-sense proposals.   Please encourage savings and new investment — from the bottoms up.  Help reward the savings of America’s low-wage workers.   Reinvigorate and reward middle-class savings and investing in 2009.

And, readers, thank you for your feedback.  Keep it up!  It keeps me blogging.  Cheers!

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