As the The Evolution of an Ownership Society post argued, people have a natural right to own the fruits of their labor free of government takings as much as possible. Moreover, ownership is critical to generate wealth, which can be invested and grow on compound annual basis over a productive career. $10,000 invested today at 5.3% real compound annual return is worth $100,000 (10x) expressed in today’s dollars in 30 years. Therefore, government policy must reward capital to cooperate with labor to broaden economic ownership to all workers so they can save, invest, and retire free of government dependence.
- Tax advantage Employee Stock Ownership Programs: principal and interest deduction for ESOP debt incurred to buy stock from company. Tax credits for 100% interest expense if taxable income growth year to year covers the interest cost so interest-free ESOP debt for growing, profitable companies where workers are accountable as shareholders too to generate taxable wealth benefiting society overall.
- Qualifying Incentive Stock Options: all employer stock options would be treated as qualifying incentive stock options so workers are taxed when they sell their stock hopefully after 12 months achieving long-term capital gains, not when they exercise their options as is current practice today with Non-Qualifying Stock options. Employers lose tax deductibility of stock options and are taxed 15% on employee stock options exercised and held greater than 12 months by employee. Workers are taxed at long-term capital gains if they hold more than 12 months or ordinary income rates if they sell within 12 months.
- Investing in Employee-Owned Companies. No capital gains taxes on investors in companies owned greater than 20% by non-officer/founder employees. We should reward business owners to sell stock to employees and encourage investors to invest in employee-owned companies as key policy lever for broad-based wealth creation in society.
- Expand 401(k) investing limit. Significantly expand the 401(k) pre-tax savings limit to $20,000/person or $40,000/household/year. We want to encourage all households to save and invest for a secure retirement. $10,000 of capital invested today plus annual inflation-adjusted $10,000 contributions generates nearly $2.0 million, or 200x, present value in today’s dollars in 30 years ($5.3 million in 30 years). That’s a secure, independent retirement and achievable for many disciplined workers.
- Employer Tax Credits for 401(k) matching contributions. Reward employers to match 401(k) contributions up to a fixed dollar amount as corporate tax credit so there is no cost to the business, only to the federal government. A direct financial reward for employers to invest in their employees’ financial well-being is the best financial tool to generate wealth through work and become independent of government in retirement.
Proposed Solutions hot links: Work; Home; Education; Retirement; Health Care; Immigration; Rejuvenation & Relationships