GOPideas... ideas done right

The New America Foundation published a report last fall detailing 83 policy proposals that would promote asset ownership throughout society. Almost all of the ideas would address some aspect of the growing opportunity gap between those with assets and those without. Many of the proposed bills had bipartisan support and many were sponsored by the most conservative elements of the Congress. (Jeff Sessions (R-Alabama) proposing a $1,000 handout to everyone born?! Who knew he was such a redistributionist?)

However, the fact that there are 83 different proposals (on top of those programs that already exist) is a symptom of the larger problem: the myriad of incentives, penalties, rules and restrictions on asset accumulation not only restricts choices, but also pushes people to opt-out of the system due to its complexity. In the book Nudge by Richard Thaler and Cass Sunstein (Obama advisors), the authors convincingly argue that "choice architecture" has a significant impact on the choices that people make. This means that people's choices depend on the framing of the issue, as much as (or more than) the actual tradeoff. Furthermore, when the choice set become too complex, convoluted or uncertain, people mentally tune-out --- and make no choice --- which leaves them worse off. 

This is what occurs today within the American social safety net: the quantity and variability of the social programs designed to provide the opportunity to accumulate assets is so complex that people voluntarily disengage. How do people who cannot afford to pay for college upfront, pay for college? There are multiple federal loan programs, each with separate rules and regulations, most of which are funneled through third parties, who may or may not sell the loan to a fourth party. Students choose a lender (which are essentially all the same because the federal government covers defaults), but can consolidate their loan elsewhere after graduation, but only once. Of course, this assumes that the student and parents combine to fill out all 103 questions on the FAFSA and provide all nine supporting pieces of documentation.

Parents can pay off loans (or apply for a separate loan program), but only under certain restrictions. Of course, this is not even considering tax incentives, state and local programs, an individual school's grant and loan programs, incentives provided by nonprofit organizations or employer-based programs. How many potential students disengaged from the process because they did not understand the financing options available to them?

A more efficient and effective method of using policy to enhance asset accumulation would be to simplify all tax-advantaged savings programs into two categories: security and investment. The security accounts would combine programs that provide long-term financial security and would include all retirement accounts, health savings accounts, flex spending accounts and any other accounts designed to buffer citizens from unexpected expenses or periods of economic hardship. The investment accounts would be those that provide for investment in an individual or family member, such as 529 accounts. Tax advantages could vary by income and account --- but would be universal for all accounts of the same type (i.e. one would no longer need a PhD in finance and crystal ball to determine whether a Roth or Traditional IRA was optimal).

Yes, this would undoubtedly lead to people gaming the system to their advantage and, yes, those with assets would have more capacity to fund accounts. However, this happens today: those with money will find ways to keep that money. The important step is to assist those who have difficulty accumulating assets, without the burden of massive regulation or the fear that saving for one event (college) will prevent them from spending on an unforeseen event (medical emergency). By simplifying these accounts, Republicans can provide the savings mechanisms people need in a context they can understand.