Dipping into retirement funds may be the answer, not tax cuts

New York Post

Dipping into retirement funds may be the answer, not tax cuts

By John Crudele       May 28, 2018

Donald Trump, AP

Congress and President Trump screwed up by cutting taxes.

That’s the opinion of a widely circulated Goldman Sachs report last week. That was also my opinion before, during and after Washington’s journey into the great unknown of tax reform.

That’s also why I proposed a solution for fixing and strengthening the economy that wouldn’t have gotten the US into the precarious position of adding an enormous amount of debt on top of our pre-existing mountain.

The US already owes more than $21 trillion. Some of that money is owed to American citizens who bought government securities. But a huge chunk is owed to foreigners, including China, OPEC and Japan.

So, for starters, there was a national security issue involved in adding more debt to the current load. When President Trump sits down to negotiate with Chinese President Xi Jinping about trade, North Korea or anything else, America is talking to the leader of a creditor nation — a massive one — who can have influence over the US economy.

That’s one issue.

The one that worries Goldman, as it does me, is how much America’s debt will grow because of the tax cuts. Then there’s the uncertainty of just how much they will benefit the US economy.

The US budget deficit was $600 billion during the first six months of the current fiscal year, which ends in September. The tax cuts, which began in January, added to that number.

That means, if the situation holds, the US will tote up a fiscal year deficit of more than $1 trillion.

Goldman chief economist Jan Hatzius, in his report, says Trump’s $1.4 trillion tax cut could contribute to an annual deficit spike of more than $2 trillion by 2028. “The US fiscal outlook is not good,” Hatzius says.

Damn right, it isn’t.

The situation will get even worse when — not if — interest rates rise and Washington has to pay more to get people to buy its securities. Rates are already up. But if bonds become unattractive to investors, rates will climb higher, making for a disaster scenario for the deficit.

What have I proposed — numerous times in this space?

Instead of embarking on the great unknown of the tax reform, Washington should allow Americans to dip into the huge stash of restricted money they have tied up in retirement accounts.

I haven’t proposed anything specific. That would have been for Washington to work out.

But I have suggested that Washington allow people to withdraw some of their retirement money, at a reduced tax rate, to invest in real estate. This plan does not increase the deficit but rather boosts tax revenue because people will have to pay some level of tax on their withdrawals.

As it turns out, the real estate market is the one part of the economy where prices are booming. So that part of my idea probably wouldn’t have been beneficial right now.

But the larger idea — allowing Americans to stimulate the economy using their retirement money — is valid. All that has to be done is to decide where this retirement money is allowed to flow and how much of it to release.

It’s too late for now, though. The tax cuts have already been passed and the results aren’t promising. Not only is the US total debt becoming even more dangerous, but there’s been little boost to the national economy, which this year is growing, so far, at only around 2 percent.

And, mainly because of the deficit, the financial markets are causing interest rates to rise and the Federal Reserve has had to be more aggressive in raising borrowing costs. As I’ve predicted, those higher rates are causing the US deficit to rise, sparking the proverbial vicious cycle of economic problems.

Soon you will hear other fiscal conservatives — on both sides of the aisle — expressing worry over the effects of tax cuts. Maybe, just maybe, this idea will get its chance to right the economic ship of state.

TAX CUTS

Goldman Sachs: Trump’s tax cuts could cause recession

The big tax cuts haven’t goosed consumer spending

America’s debt is set to soar — and it just got far worse

Trump tax cuts expected to raise federal deficit to $804B this year

Why gas prices are so high — and what Americans may have to risk to make them lower

Fed prepared for temporary inflation jump over gas prices

Author: John Hanno

Born and raised in Chicago, Illinois. Bogan High School. Worked in Alaska after the earthquake. Joined U.S. Army at 17. Sergeant, B Battery, 3rd Battalion, 84th Artillery, 7th Army. Member of 12 different unions, including 4 different locals of the I.B.E.W. Worked for fortune 50, 100 and 200 companies as an industrial electrician, electrical/electronic technician.

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