And I have happened upon one of these rare ideas.
Make any principal payments of debt (specifically on mortgages and student loans) qualify as legitimate contributions to people's IRA and 401k accounts.
The arguments for this are so simple and so compelling that I will be putting together a petition in that I truly believe all congressional members and President Obama would sign this into law. However, my optimism no doubt will be rebuked by some naysayer in Washington or some mortgage banking industry lobbyist. However, hear me out and tell me precisely how this could possibly fail, and if you agree, I would appreciate spreading the word as this will genuinely help the country.
First, it will provide an incentive to improve nearly everybody's personal finances. As it stands right now Americans are woefully prepared for retirement and have horrible personal finances. Paying down debts earlier and faster will only help to shore up their finances making it easier to squirrel away money for retirement at a sooner point of time in the future than if they just kept "borrow borrow borrow."
Second, if you look at nearly all the various asset classes that do qualify as a tax deductible investments for IRA's or 401k's, they provide very LOW AND POOR rates of return. I am ignoring capital gains on this, as once again there are no such things as capital gains. However, if you look at what type of interest rates bonds and savings accounts are paying today (0% when you adjust for inflation) and what kind of rate of return dividends are paying on stocks (2%, again, 0% when you adjust for inflation) you'll see these asset classes are so overvalued that there is no real rate of return (except for dem der "magical" capital gains). However, there is a MUCH better rate of return when it comes to paying off your mortgage or student loans. Both roughly average around 4%, twice the average of what nearly every other security is paying out there.
Third, it's risk free. When you invest in a stock you could be investing in the next Enron. When you invest in a bond, you could be investing in the next
Finally, it's moral. Businesses get to deduct R&D and construction expenses as a cost of doing business. But today we ask young kids to load up on tens of thousands of dollars in debt just so they have the right to maybe apply to maybe be considered to maybe be contemplated to maybe be called into an interview to maybe...maybe, that is, get offered a job. However, while young college students are merely doing what businesses do (building up a product - their skills - to sell to an employer/client) they do not get to deduct these crippling expenses from their taxes, while businesses do. If there was any morality in the country (not to mention a desire to win the youth vote while not alienating conservative voters at the same time), allowing principal payments on tuition to be tax deductible would be on every upcoming presidential candidate's platform.
In short, all I am pointing out is that another asset class (paying down one's debt) should be added to:
as a qualified tax-deductible contribution for people's IRA's and 401k's.
Admittedly, no asset would be purchased and thus "stored" in these retirement accounts for later, however, I contend providing the same tax treatment to such principal reduction payments will go a lot further in improving people's personal finances and helping them adequately prepare for retirement.
Please sign the petition here and please also forward this to others as we need 100,000 signatures and I truly believe this is such a no-brainer it will actually get implemented.