Reinventing the Individual Retirement Account

The Baby Boomers are lurching towards their golden years with way too little in the way of savings. But at least the federal government is going broke as well…

I’ve done some thinking as to why people don’t save more. It isn’t because they need some Jedi Social Scientist to do priming or play with defaults. The real reasons are much more in line with straightforward economics:

  1. The government encourages people to spend too much and go in debt.
  2. Saving for retirement is not rational when their is debt to pay down and large near term expenses on the horizon.
  3. The array of government approved tax deferred savings options is ill designed and insanely complicated.

It might be nice to fix some of these things, starting with devising the ideal IRA. It’s based on the traditional IRA, but with higher limits, fewer restrictions, fewer penalties, and simpler rules over. This could replace a whole bunch of existing programs and thereby eliminate hundreds of millions of pages of tax filings every years.

I based the Ideal IRA on the traditional IRA for several reasons. See my comparison of the traditional vs. Roth IRA. You’ll find an interesting bit of Santa Claus Economics.


Stabilizing the Stock Market

There is a reason why the stock market fell by nearly an order of magnitude during the Great Depression. The U.S. has since partially remedied that reason. This partial remedy has saved us from another truly catastrophic crash, but still lets the market bounce around enough to be interesting for those who like that sort of thing. And a bouncy market makes makes Dollar Cost Averaging look real good.

The problem with a bouncy market is that the dynamics of Dollar Cost Averaging work in reverse when it’s time to sell — for example, when it’s time to retire. Note to small government conservatives and libertarians in the audience:  if you want to convince the voters to privatize Social Security and invest in the stock market instead, you have to take the bounciness out of the stock market first. I introduce how in:

For a More Stable Stock Market

Read it. Then come back here if you wish to comment.

Tax Tables for 2014

I’ve read the IRS announcement on changes for 2014, and I have waded through explanations of the Affordable Care Act’s Premium Tax Credit…

My eyes have been stained by looking at The Federal Register! AAAAAAAAAAAAAAAAAAAAAARRRGH!

I then recovered and updated my baseline income tax model to estimate what taxes are going to be like for the masses for 2014. Big change: ObamaCare is in effect a massive new negative income tax, but you have to jump through some hoops to get it. Expect unfairness to follow.

On the upside, the larger negative income tax makes it easier to approximate the baseline system with a two-tier Simple Tax. And I have the tables to prove it. Check out:

Simple Income Tax Tables for 2014

Then come back here if you want to comment.

2013 Tax Calculations

When I first presented The Simple Tax, I compared it to a model of the tax code as of 2013. I used 2013 because the 2013 guide was available, and I didn’t have to deal with the complexities of the Affordable Care Act.

I then wrote of an appendix article giving the gory details of my model. Read it here:

2013 Tax Calculations

if you dare.

Then come back here to comment if you have any brainpower left.

Introducing: The Simple Income Tax

It’s that time of the year: time to begin to commence to think about gathering up information to give to your account to do your annual income tax filing. Not only does Uncle Sam take your money, he makes the process difficult and painful.

Allow me to present an alternative: The Simple Income Tax. It’s still an income tax, but it is far simpler, simpler even than most flat tax proposals. And unlike flat tax proposals put out by the political Right, The Simple Tax is more progressive than what we have today. Yet it is in many ways flatter. Bipartisan action is theoretically possible.

Paradox? Slight of hand?

Nope. It’s simply combing all the different income taxes into one. For an extensive explanation and lots of numbers read the full article:

The Personal Income Tax Made Simple.

Then, if you feel moved to comment, come back here to the blog.

The Marginal Value of Money

I see a lot of  lies and half-truths via statistics concerning poverty rates and the virtue of equality vs. general prosperity. It’s not so much that data is fudged; it’s the choice of what is measured and how it is plotted. Per capita GDP is a poor measure of general prosperity. The GINI coefficient is a mediocre measure of inequality.

In The Marginal Value of Money, I propose a first-order correction. It is imperfect, but it can be the basis of improvement in the various discusses both from the Left and the Right. Read it can come back here to comment if you so desire.

Payroll Made Simple

When Republican leaders talk tax simplification, they usually mean tax cuts for the rich. If we weren’t running an enormous deficit, or the rich were more overtaxed than the upper middle class, this might be a good idea. Today, it isn’t. So taxes just keep getting complicated.

Well, it is possible to simplify tax collection while keeping what’s left of the progressive income tax. Indeed, we can simply tax collection for employers without changing tax rates, deductions, or loopholes at all.

I introduce the idea at A Free National Payroll Service. Go there and read it. Then come back to this announcement post if you want to comment.


A Simpler Alternative to ObamaCare

Employer provide health insurance is perhaps the strongest chain tying people to a life of wage serfdom. The chain provides several modes of constraint:

  1. Changing jobs becomes cumbersome and expensive since you have to fill out all the paperwork to change policies with each job change.
  2. Setting up a group plan is a major headache when starting a new business. It was expensive too for middle aged entrepreneurs with preexisting conditions.

The old system was so bad that it made socialized medicine look almost good — and I personally loathe the idea of socialized medicine. The last thing I want is to experience the customer service and efficiency of the Department of Motor Vehicles when I get sick. I would rather overpay for private medicine.  Alas, this option is not feasible for everyone.

So, while I was greatly concerned that we were on the way to socialized medicine when Barack Obama won the presidency, the resulting legislation is surprisingly not bad ObamaCare probably has some truly nasty provisions buried in its 900+ pages that I’ll whine about in the future, and I strongly suspect that some of its price control measures will backfire as such things tend to do.

But there is a huge upside: a viable individual market for health insurance by those not still young and healthy. And if I am reading the Wikipedia summary of the Affordable Care Act correctly, the employer mandate won’t cut in until a business reaches 50 full time workers. This gives many a small business time to grow before dealing with health insurance headaches. ObamaCare may start a small business renaissance.

Then again, ObamaCare is needlessly complex, like this MIT designed Coke machine:

So on the main site I propose a simpler solution, with most of the benefits of ObamaCare minus 850 pages of legislation and a stupid overpriced web site. Read it there and come back here if you wish to comment.

Proceed to ObamaCare: a Simpler Alternative.

A Third Vision

Americans are asked to choose between two visions of wage serfdom.

The Democratic vision runs roughly thus: Yes, wage serfdom is the lot of most, but we can make it tolerable by constraining our corporate overlords using the might of the state. And many of you can enjoy security by being a wage serf for the government itself.

The Republic vision is roughly thus: No! Government is the more dangerous overlord. Unleash the corporations and their managers and prosperity will rain down upon all.

The third vision is split between the two major factions. The two major parties take turns serving betraying it. The third vision is free agency, being your own boss or switching bosses at will. It is a vision of an economy dominated by small farms and small businesses, with big business and big government confined to those domains where the economies of scale are overwhelming.

Finance and Freedom is devoted to fleshing out this third vision: what it is and how to get there.