You may not have noticed it as you channel-surfed past C-Span in search of tennis, talk shows or Tiger Woods, but America is on the brink of a great revolution.
What’s more, it could be that rarity of a revolution: one that topples nobody, elevates everyone and pleases partisans from radical left to reactionary right.
The fount of that unmitigated blessing? The tax bill now being debated in Congress.
Don’t take my word for it. Listen to Fred Goldberg, former commissioner of the Internal Revenue Service, head of the tax department at the Washington office of Skadden, Arps, and all-around smart fellow:
“That bill, which has been criticized across the political spectrum, could be the most important tax reform of our lifetime,” he told me the other day–not because of the bill’s controversial features but because of the one thing everybody seems to have signed off on: Kidsave.
It would (as you might have guessed) take a little tinkering to transform Sen. William Roth’s tax plan into the stuff of revolution.
To understand Goldberg’s proposal, you have to start with Roth’s. The Delaware Republican, who is chairman of the Senate Finance Committee, would allow the parents of children under age 12 two options. They could claim a $500-per-child tax credit against their tax liability or they could receive a dollar-for-dollar credit up to $500 for money invested in tax-deferred Kidsave accounts. The Kidsave funds–a sort of enforced savings plan–could be withdrawn without tax penalty for college expenses.
Parents of children aged 13 to 16 would have a single option: the Kidsave account.
Good idea, Goldberg admits, but sort of ho-hum. What would it take to make it truly and wonderfully revolutionary?
“Just turn it on its head, and you’ve done it,” says Goldberg, who becomes practically lyrical explaining why.
“Make the mandatory saving part apply to children between zero and 6, with the optional part for older kids. I’d let parents make withdrawals for their child’s education, preschool through postgraduate, for health care (including health insurance), for the downpayment on a first home, or for retirement. Also I’d include parents who are subject to payroll taxes even if they pay no income taxes–but only for Kidsave accounts.”
The revolution Goldberg talks about comes from the magic of compounding. Putting away $500 a year for the first six years of a child’s life could produce (at a mere 6 percent growth rate) some $7,500 by age 18–double that by age 30 and a surprising $125,000 by age 70.
Roth’s plan, says Goldberg, is like telling people to start saving for their retirement when they’re already 60 years old.
But it isn’t merely the power of compounding that excites Goldberg. “Do you know that only a tenth of American families with incomes of under $50,000 own any stocks, bonds or mutual funds–and less than half of them have any sort of retirement account? When it comes to black and Hispanic families, fewer than 5 percent hold any financial assets. This would change that completely.”
And with potentially astounding consequences, Goldberg believes. He raises a point I first heard raised by Michael Sherraden of Washington University in St. Louis: that owning assets changes behavior. Listen to Sherraden:
“Assets alter the reception of information. When assets are present, people begin to think in terms of assets. If a young mother owns her own home, she begins to pay more attention to real estate values, property taxes, the cost of maintenance and so forth. If she has a certificate of deposit, she is more likely to pay attention to interest rates and what makes interest rates go up or down.”
More to Goldberg’s point, the possession of assets almost automatically creates a focus on the future.
That, of course, means a reduction in such future-risking behavior as using drugs, committing crime, having babies out of wedlock or dropping out of school.
“Just think about it,” exults Goldberg, “We’re within spitting of a revolution that, as far as I can see, has no downside, no victims. The fact that individuals would have control over how to invest their money, and what (among permitted purposes) to spend it on gives them the sort of `choice’ that conservatives love. It makes them responsible for their own future, and the future of their children. It’s the ultimate in conservative responsibility.
“But it’s practically Marxist in that it transforms workers into owners.”
And not a single bomb bursting in air.
