Abolish taxes for people under 30
With the SOTU speech upcoming this evening, I thought I'd lob out a policy change that's been bouncing around my head for a little while now. Namely, abolish income taxes for anyone who is less than 30 years old (you'd have to pay income taxes in the year you turn 30).
Now, be forewarned that I have not run this plan by the CBO, so I have no formal estimates regarding the hit this would cause to the U.S. treasury. Moreover, I understand that our country is currently running a deficit.
But here's why I say what I'm saying.
The biggest drain on budget deficit projections are entitlements. Somehow, these have to be fixed. The only way to get people off of entitlements later in life, however, is to make sure that they have enough money in the bank to support themselves at the time they would otherwise be receiving entitlements (i.e., 65 or older).
As we preach here at Fool.com, the only way to assure this is to start saving and investing early. Given the stock market's historical returns, we can be pretty assured that a 22-year-old who starts now will do better if they were to pay their social security tax into an index fund than if they were to wait for social security in 40 years and just get the COLA and inflation adjustments.
So, if we stop taxing folks under 30, I think we achieve a few things:
1. We encourage them to work and advance quickly in their jobs. The more you earn before you're 30, the more you keep.
2. With more income, we might be able to push up homeownership rates without adding government programs.
3. With excess income, folks can get started saving and investing sooner. Time, as we know, mitigates risk in the equity markets and increases returns. Hopefully, this reduces the need for entitlements going forward.
4. Given that young workers generally aren't in their prime earning years, we don't lose an overwhelming amount in tax revenue.
Obviously, there's a lot more that would need to be laid out before such a plan could be approved. That said, I do believe we need to take steps to simplify our government and incentivize our society.
Smoke 'em if you got 'em, or add comments if you got 'em. Enjoy the SOTU.