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February 7, 2005
FY06 Budget
The budget is out. The good stuff (summary tables) is here. As of 10:30, the pdf version was not posted. I'm guessing they will be there soon, but for now the html will do.
Let me give you some things to chew on.
From the section on the ownership society:
Even with all the positive changes the President has signed into law, the Federal income tax code still discourages economic growth in many ways. For example, the income tax continues to discourage saving for many taxpayers, and so the President has proposed Retirement Savings Accounts, which would replace the complex array of retirement saving incentives currently in the tax code, such as IRAs, Roth IRAs, and similar saving vehicles. The President has also proposed Employer Retirement Savings Accounts to simplify the saving opportunities individuals have through their employers.
The President also proposed Lifetime Savings Accounts that would, for the first time, allow individuals to save on a tax-preferred basis for any purpose. While important to all Americans, Lifetime Savings Accounts are especially important to low-income individuals and families who need to save, but cannot afford to lock up funds for retirement that may be needed for an emergency in the near-term. The President also proposed Individual Development Accounts that would give extra financial incentive to certain low-income families to set aside funds for major purchases, such as a first home.
I had to read that twice. He says "replace" IRAs and Roth IRAs. The Lifetime Savings Accounts and Individual Development Accounts are noble ideas. See below.
For generations, the tax code has encouraged Americans to spend first and save second. These proposals would level the incentives to save and consume, thereby promoting a culture of saving in America that is essential to future prosperity.
Then he better make sure that whatever is replacing the Roth IRA will actually achieve the goals of increasing saving for the middle class, and that it is progressive (i.e. gives incentives and tax breaks for low income families). If he can do this, I'm on board. But the Roth IRA is such a good idea that I would be careful about what I replace it with. I can think of ways to change the rules for a Roth IRA that would accomplish his objectives (tax incentives for low income familes, reduced penalties for early withdrawl, etc.) But that really changes the program. The fact that he is proposing something totally new to replace the Roth and the traditional IRAs says that this is just one step in a major tax code reform.
Your opinion on that will be determined by more than just what's in the document we saw today. That's for sure.
As for all the spending cuts. Good luck! However, I do think that the revenue projections are a little conservative. They were in the mid '90s too. I think conservative projections also partially explains the fact that the deficit is lower now that it was projected to be at this point a year ago. Click here to see that the rebound in receipts, though not complete, has begun.
Discuss.
Posted by William Polley at February 7, 2005 10:26 AM
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