by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
I’m just spitballing here but I think two simple (and temporary) actions could stimulate the economy and save the auto industry:
1-Suspend the payroll tax for a period of time. (not my idea but I like it)
2- allow a one-time, tax and penalty-free withdrawal, up to $25,000, from 401-k plans, for the purchase of a new vehicle , until December 31, 2009 (my crazy idea)
COMMENTARY: The payroll tax supports a bankrupt system; social security. The faster we all accept that fact, the better. Let’s take what’s left in the plan, commit the balance to everyone over 60, and stop the insanity. Most anyone under 45 hasn’t expected to receive social security entitlements for ten years, now.
Allowing a one-time 401-k plan withdrawal will certainly “mortgage our future” but we’re doing that already. The Industrious Eileens will invest in the automakers (through their 401-k) and the Spendthrifty Sams will jump at the chance to buy a new car. At least the individuals will be deciding what to do with THEIR money.
John Kalinowski says:
Not so sure about the 401-k idea. Most retirement plans have been decimated in the last year, and that trend will likely continue this year. The current administration doesn’t realize that it’s not only the super-rich that own stocks, and they continue to wipe out shareholder equity by taking huge stakes in banks. Now they’re also going after medical companies and those stocks are falling farther.
Most people should be driving their cars longer, not raiding their 401k to buy a new car. Unfortunately, for 99% of the population, the 401k is a scary concept that will leave most people broke at retirement. People either play it too safe or don’t contribute enough, or they take the money out at some point for something frivolous. Not sure what the answer is, but I think we’re going to see a huge number of people reaching retirement with nothing.
The so-called “professionals” can’t even manage money properly, so how is the average Joe supposed to figure out how to grow his 401k enough to make ends meet in retirement?
March 1, 2009 — 8:17 am
daniel says:
The one thing that would stimulate the economy long term is savings progam with a return of 6-8%. However, we have all decided that consumption is the right answer so I really don’t expect anyone to talk about saving anytime soon, if ever.
March 1, 2009 — 9:19 am
Sean Purcell says:
Quite a lot of mileage covered in such a short post. Stimulate the economy, save the “auto industry,” suspend payroll taxes AND penalty-free withdrawals from one’s 401K?
-Suspending the payroll tax is a no-brainer… unless you make laws based on getting re-elected instead of what’s best for the country; in which case you do whatever baby boomers tell you is best for their bankrupt generation. (We’ll have another 15-20 years to deal with that consequence-less influence).
-Wouldn’t removing money from a 401k right now lock in the losses suffered in the marketplace? Are you suggesting the stock market is not going to restore some of the lost profits over the next 5 years? (Personally, I see the stock market rebounding sooner and to a greater degree than housing.)
-I wonder if stimulating the economy is no longer a goal. The gov’t has already given us close to 3 trillion stimulations – to no avail. This is a confidence crisis. At some point (sooner rather than later) the recession will subside and we’re going to be stimulated right into hyper-inflation. Not sure we should be purchasing more depreciating assets in the face of a gargantuan inflationary monster just to save the “auto industry.” Which brings me to:
-The presumption the “auto industry” is in need of saving. I think your post would be much more interesting if the suggestions made were related to a more accurate goal: saving GM & Chrysler. Automakers are taking a hit, no doubt; so is everyone else during these very difficult times. But the only “industry” about to go under is the industry of “bad business decisions and union strangulation” practiced by GM & Chrysler. Even Ford managed to steer a course through the mess and has yet to take any money from the government – never mind all the foreigh automakers with plants here in the US.
Can we please stop pretending an entire industry is about to collapse? It’s not…
March 1, 2009 — 11:40 am
James Boyer says:
I kind of liked the up to $15,000 tax credit for anyone who wanted to purchase a primary residence. It addressed the main problem with the banking system and over all with the economy. It would cut down on the number of foreclosures, and support what the government has been wanting for a long time which is a high rate of home ownership.
I think cutting the payroll tax is ok, but as things sit now, most will probably just save the money, which will not help the economy.
The car thing I don’t think is a good idea as a good chunk of that will get spent on cars and such from other countries. Any attempt to limit it to American Cars will be labeled as protectionist and cause big problems.
March 1, 2009 — 12:44 pm
James Boyer says:
It is too bad the big thinkers we have elected to congress opted to remove the above talked about tax credit.
March 1, 2009 — 2:48 pm
Brian Brady says:
“Can we please stop pretending an entire industry is about to collapse? It’s not”
Autos, houses, or , whatever. I’m looking for a way for people to get to their money without taxes or penalties.
Most people would spend it while a few of us will try to find out where they’re spending it, so we can invest our money there.
I’m trying to find which “numbers” “the house” will favor next
March 1, 2009 — 5:38 pm
Robert Kerr says:
Hit up 401(k)s to buy cars? No, thanks.
Myself, I welcome the return to a stable, saver society and I see no reason to try to prop up the collapsing consumption society.
We all knew it was unsustainable. The only question was when it would fall apart.
Yes, it’s a painful readjustment, but in the long run, we’ll be healthier for it.
I agree ths SS is broken badlym but I haven’t heard any good ideas for how to fix it. We can’t just abandon everyone under 45 nor the disdabled, who currently get benefits under SSDI.
March 1, 2009 — 7:46 pm
Thomas A B Johnson says:
The people who don’t have 401k’s,elected Obama. The people who profit most from 401k’s (Wall St) funded Obama. Why would they help the non supporters? It has been said very clearly, Brian: “THEY WON.”
The only way 401k holders are going to get a say in this is the 2010 election. Will DOW @ 2500 be enough to get their attention to stop the madness before the Chines demand 15% on our treasuries? A credit default swap on the 10 year T-Note now costs 1/3 of the yield. A US T-Note is obviously not the risk free paper it once was. It is only a matter of time before we see the MBS market reflect the madness. Cake anyone?
March 1, 2009 — 9:27 pm