2024 Economic Policy Proposals

2024 Economic Policy ProposalsThe key issues of the 2024 presidential campaign appear to be Trumps legal problems, Biden’s age and health, racism, abortion, and LGTBQ rights. Both sides will appeal to the fringe of their respective parties to maximize turnout.  There will be very little discussion of economic and financial issues, like health insurance, student debt, Social Security, and efforts to facilitate increased private savings. 

Republicans have very little to offer about health insurance and student debt.  They support repeal of the ACA but have no viable plan for its replacement.  They oppose meaningful proposals to reduce student debt and college costs.  Their domestic policy agenda is almost completely centered on a desire to cut taxes for the wealthy.

Republican proposals for private accounts as part of a revamped Social Security system fail to recognize that the required diversion of funds from the existing system would increase automatic benefit cuts.  Republicans also fail to recognize that young households are incapable of saving more for retirement due to increases in health care and student debt costs and problems with retirement savings incentives.

The Biden Administration failed to substantially improve, household financial security and systematically exaggerates its achievements.  Many of the Biden Administration efforts on health care and student debt have phased out, are scheduled to sunset, or have been overturned by the courts.  

For example, the Covid-era Medicaid expansion have lapsed, the expanded earned income tax credit has lapsed, the expanded premium tax credit for state exchange health insurance is scheduled to sunset in 2025, the Supreme court has disallowed the Biden-Administrations student loan discharge executive order, and the recent Income Driven Replacement (IDR) loan executive order has been paused while it is challenged in the courts.

The Biden Administration has not meaningfully lowered the number of people without health insurance, reduced out-of-pocket health care costs, or the trend towards higher student debt and college costs.

The Biden Administration has been vocal about their opposition to Republican Social Security reform proposals but has not highlighted or pushed for their preferred approach.

The current debate on private retirement savings is being driven by the needs of large investment firms, not the needs of people struggling to save.  The industry proposals to increase private savings involving expansion of 401(k) acts enacted in Secure Act 2.0 will, as discussed here, have only a modest impact.  

The purpose of this memo is to outline policy initiatives to mitigate problems impacting health Insurance, student debt, Social Security, and private retirement savings.  

The proposals presented here recognize the interdependence between efforts to improve financial security of young adults and Social Security reform.  Any viable Social Security reform proposals will require young adults to save more for retirement, but young adults are saving less due to higher medical costs, increased student debt and a private retirement system that caters to Wall Street instead of savers.

Health Insurance Reforms

The new health care reform proposals are described in a post titled Five Modifications to the Biden Health Care Agenda.

Proposal One:  Modification of tax rules governing the premium tax credit for state exchange insurance:  The modified tax credit and rules governing access to the tax credit would expand the role of state exchanges, which would allow people to maintain insurance coverage during all job transitions.

Proposal Two:  Eliminate the use-or-lose provision for flexible savings accounts and replace it with a provision that allows the rollover of unused funds to a retirement account: Proposal would increase savings to cover out-of-pocket health expenses and reduce the tradeoff between savings for retirement and saving for health care.

Proposal Three:  Replacement of a tax deduction for contributions to a health savings account with a tax credit.  The proposal would assist low-income households who find it difficult to save for any reason.

Proposal Four:  Replace short-term health plans with a low-cost health plan that provides comprehensive coverage:  This admittedly ambitious proposal combines access to a private health insurance plan with an annual cap with automatic access to Medicaid once the cap is reached.   The idea was originally discussed here.

Proposal Five: Facilitate Necessary out-of-network treatments at narrow network plans:  Proposal includes improved network adequacy rules, expanded dispute resolution procedures, and additional government subsidies for certain complex medical situations.

Go to the kindle book A 2024 Health Care Reform Agenda, for the motivation of these policies.

Student Debt and College Costs:

New policies to reduce student debt burdens and stem increases in the cost of college can be found at the post Modifications to the Biden Student Debt Policy.

Proposal One:  Eliminate all interest charges for the first three years of all federal student loan. An emergency executive order would eliminate payment shock from the restart of student loan payment obligations.  A permanent change requires legislation.

Proposal Two: Modify the standard 10-year and 20-year federal student loan contract to eliminate all interest charges at the maturity of the loan.  The automatic elimination of interest charges, unlike total loan discharges does not encourage excessive borrowing and does not create administrative burdens on loan servicers and borrowers.

Proposal Three:  Modify IDR loan programs to provide for gradual partial discharges of student debt: This program reduces administrative burdens and a partial rather than complete discharge could discourage excessive borrowing.

Proposal Four:  Provide greater financial assistance to all first-year students:  The goal is to eliminate all debt incurred in the first year because a substantial number of first-year students do not complete a degree and have problems repaying their loan.

Proposal Five:  Create incentives for increased admittance of students after one-year of community college  A higher share of incoming student with one year of college allows top schools to admit more people, reduces the number of people who fail to graduate on time, reduces debt loan of typical student, and reduces the number of people who leave school prior to completing a degree with a large debt load.

Proposal Six:  Bankruptcy code modifications to assist student borrowers in bankruptcy:

First, the bankruptcy code should be modified to allow for the discharge of private student loans in either Chapter 7 or Chapter 13.  Second, the rules governing Chapter 13 payment plans should be modified to guarantee priority of student debt payments over consumer loans.  These changes assist both taxpayers and student borrowers.

Social Security Reform:

A recent post on the Cassidy/King Social Security reform proposal can be found here. Several new posts on Social Security reform proposals will be available soon.

In general, Republican proposals to reform Social Security involve benefit reductions combined with the creation of private accounts while Democratic proposals to reform Social Security involve additional revenue.  The Social Security reform proposal that I am working on involves both new revenues and benefit adjustments.  

Social Security Reform Component One:  Provide additional revenue and delay projected Social Security benefit reductions  Additional revenue earmarked towards Social Security includes revenue from a tax on people earning more than $500,000 per year, revenue on a tax on people with retirement accounts (either Roth or conventional) over $25 million dollars, changes to the RMD rules on inherited IRAs and inherited 401(k) plans, and for a limited time the use of the general tax revenue for purposes of maintaining Social Security benefits.

The use of general tax revenue to subsidize Social Security benefits would lead to higher deficits and increased government debt.  The extent of the increase in debt depends on spending on other programs and the magnitude of new tax revenue earmarked towards the Social Security program.

The additional taxes and the guarantee of the current Social Security benefit would be linked to adjustments in benefits and only remain in place for 20 years.  

Social Security Reform Component Two:  Increases in the retirement age and benefit cuts designed to impact future benefits for people entering the workforce.

The minimum retirement age for receipt of Social Security benefits will be raised from age 63 to age 62 over a 12-year period.  

The full retirement age for receipt of the full retirement benefit will be raised from age 67 to age 68 over the same 12-year retirement.

The annual increase in retirement benefits for work after age 68 will be reduced to 6.0 percent per year.

 Annual increases in the retirement age would stop at age 70, same as current law.

Private Retirement Savings Reform:  

The Social Security reform and the continued upward trajectory of student debt and medical costs will make it harder for future generations to achieve financial stability.  It is essential that reductions in Social Security benefits be linked to reforms that improve the safety net, reduced medical and student debt, and increase the ability of young adults entering the workforce to save for retirement.

The proposed improvements to health insurance and student debt have been discussed above. 

A detailed post on a 2024 Retirement Savings agenda can be found  here.

Proposal One:  Create and automatically fund a savings vehicle for new entrants into the workforce.  The Secure Act 2.0 calls for automatic contributions to 401(k) plans, but most young workers do not have access to a 401(k) plan.  It is essential that young workers save more because many young adults do not have resources for an emergency and early compounding of savings increases wealth at retirement.  The provision calls the creation of automatic funding for savings vehicles as soon as a person enters the workforce.

Proposal Two: Provide additional tax incentives for savings for people starting their careers.

The additional incentives would be available for people without current access to a 401(k) plan and with limited retirement wealth.  A lifetime total of $1,000 in tax credits would be linked to a total of $1,000 in IRA contributions.  Non-participation would be irrational since the credits cover the cost of the contributions. Since the goal of this taxpayer money is to stimulate retirement savings there should be significant limitations on pre-retirement disbursements.

Proposal Three:  Provide some limitations from pre-retirement disbursements from retirement accounts. The tax code should be modified to limit pre-retirement disbursement from retirement accounts because over half of all young workers have taken funds out of their retirement account and many young workers routinely disburse funds from their 401(k) plans during job transitions.

Proposal Four:  Allow the purchase of Series I bonds in retirement accounts Current law only allows for the purchase of Series I Savings bonds through Treasury Direct, which precludes their use in retirement accounts.  Investors saving for retirement routinely lose a lot of money on funds placed in bond ETFs.  A rule change that allows retirement savers to directly purchase Series I bonds with funds in retirement account would substantially reduce risk and increase returns on retirement assets.

Proposal Five:  Encourage expanded use of savings through the Treasury Direct web site and restore the annual limit on purchase of Series I bonds to $30,000. Treasury Direct does not charge fees to investors while fees on retirement accounts and brokerage accounts can be considerable.    The Series I savings bonds, currently only available at Treasury Direct, provide substantial impact from inflation.  Traditional portfolios often perform poorly in periods of high inflation.  

Prior to 2008, the annual limit on Series I savings bonds was $30,000, compared to the current annual limit of $10,000. Go here for a timeline on rule changes impacting Savings Bonds.   The restoration of the $30,000 annual contribution limit coupled with additional education on the benefits of the use of Series I bonds would substantially improve portfolio performance for many households.

Concluding Thought:  An important purpose of a political campaign is the presentation and the discussion of alternative policies.  The American people want change and President Biden won’t win reelection against someone other than Trump and, yes, the President could lose to Trump. The Democrats need to objectively evaluate their record and discuss policies that meet the actual priorities of the American people.