Gimme Back My Nest Egg

Economic recovery is still sluggish and Americans that have seen their life's nest eggs wiped out are still reluctant to wade back into the investment pool. Here's a new idea outlined in my recent op-ed in Weekly Standard for the capital gains tax that could help restore American confidence in saving and investing and rebuild retirement nest eggs.

Rather than applying a reduced capital gains tax rate to the sale of an investment (currently at 15 percent), why not apply the tax break based on the purchase date of the stock? Under this plan, taxpayers who purchase a capital asset within one year of the date Congress initiates the legislation would pay a capital gains tax under a new sliding scale tax rate similar to that proposed by President Franklin Delano Roosevelt. If an asset was held for one year, any gain on the sale would be subject to half the normal capital gains tax rate (a maximum 7.5 percent under current law or 10 percent under President Obama's proposed top 20 percent tax. If an asset was held more than five years, there would be no tax on the gain. The capital gains tax on equities or other capital assets in tax-preferred accounts (401(k)s and IRAs, for example), would also be less on withdrawal than the ordinary tax rate that would otherwise apply. Remember, Americans' nest eggs are located in 401ks, IRAs, and similar accounts as well as in banks, insurance companies, brokerage accounts and other forms of ownership.

This approach could provide just the incentive needed to motivate Americans to move their dollars from bank accounts, money markets, or under mattresses back to the stock market and other investments. "Gimme Back My Nest Egg" could provide strong encouragement to buy equities again, thereby supporting the stock market and restoring retirement security. An FDR-type sliding scale would also be an incentive for investment stability, rather than short-term speculation. It is not a magic bullet, but it could be a powerful element in economic recovery.