Over the past few weeks one could not escape the headline of the latest proposal to give away two years of community college. Everywhere it was debated by pundits whether it was a “good thing,” or a “bad idea”. “Who would, in the end, pay?” “Who would be eligible?” “Who wouldn’t? So on, and so forth. (for as we all know when you receive something for “free” there’s always a catch)
One of the details that was missed early on that finally made its way into the discourse was that “free” actually meant it was going to be paid for via the rescinding of the 529-Plan. A plan used primarily by the middle class as a way to help pay the onerous ever rising costs of college. A college by the way – of choice. i.e., A school they deem as being more noteworthy (or resume enhancing) than the typical community college.
Of course once this detail became apparent there was an outpouring of outrage. So much so that the idea was pulled and shelved nearly as fast as it came on the scene. This doesn’t happen that often. Rarely does a “give-away” initiative that’s designed to have all the right target buttons to be pushed leave the political arena before it’s been thoroughly fear mongered, class envied, and argued to death in the public square.
With at least 6 months if not more to go before any real political campaigns start in earnest for the next cycle, one would think this was just what a political debate vacuum would want. It had all the ingredients adored by political parties to throw barbs from podiums at the other side. (no matter the side) It is a perfect debate vehicle even if there’s no chance of it ever going thru. Because we all know; it really doesn’t matter at the time if an idea has a chance in passing. Rather, it’s more important the argument can be used to bludgeon your opponent. For that’s a far better use for results. Yet, this one was like a flash in the pan idea. Before the debate even started it was squelched and withdrawn. Why?
Many will say it didn’t have a snowball’s chance in you know where once some of the details became apparent. Sure, I can agree to that. However, what if the real reason had nothing to do with funding college: and had everything to do with setting a precedent? A precedent as to soften the masses up on the idea of trading or exchanging a tax deferred program (as in your 529 tax deferred nest egg) for a shiny new government backed program. All for “free.”
So you’re think “Yeah, yeah, yeah, what else is new.” And again I would agree with that . But here’s the issue that one must consider. What struck me was the fact in just how fast this proposal went away. Then it began to dawn on me. This has “trial ballooning 101” written all over it. We’ve seen it so many times before regardless of party. So may times in fact we’ve drawn oblivious to it.
So, what is the real idea behind this probable balloon? Why even bring this into the public debate at all; especially now? It’s not like they need private institutions to bank roll higher learning any longer. That was basically done away with just a few years ago when the administration took over the entire student loan program. They now currently control it.
Tweaks, changes, special financing and more could all be done with basically “strokes of the pen.” There just has to be something here more than what typically meets the eye. Then it hit me: Replace 529 with 401K – and change college to retirement. Same premise, just the severity of outcomes changed. Which is why I believe it was a trial balloon idea to see the reaction to the underlying argument that was first and foremost the reasons to bring it forward.
If one remembers back in the early days of the financial crisis when it seemed all heck was breaking loose the then House Speaker was appearing on nearly every financial media channel touting the idea that maybe “The government should institute a program where people could turn over their 401K plans for a secured government bond.”
I remember at the time listening slack-jawed not only for the implications of such an idea. Rather, it was the brevity along with just how fast this idea came to light. It wasn’t as if there was a large vibrant ongoing debate. This seemed to come out-of-the-blue as a neatly packaged idea ready for anyone else (politically or via the populace at large) to jump on board and help push, or run with it. However, it too went away seemingly just as fast and was shelved.
I believe “shelved” is a very instructive word. For it implies: Ready to go when or if needed – again. These types of ideas don’t seem to be spontaneously derived, or a serendipitous bubbling out of the political ether. No, usually they are constructed far in advance then shelved waiting for the “right time” to either impose – or float for the future.
Many have written and spoke on the subject that the government in one form or another wants to get access (whether to tax or confiscate) the large pool of money that sits currently beyond their reach within the 401K structure. And nothing burns a hole in a politicians pocket faster than knowing there’s a great big ole pile of money somewhere within the financial system.
The only problem? Currently they can’t get access to it. (Regardless of party affiliation) But one should not think the political class doesn’t lay awake sleepless thinking about ways to garner access to it – just as often as one does the same for the opposite effect.
I believe it would be prudent for anyone to consider with what is currently going on within the financial markets globally, as well as the possible contagion concerns that may raise their ugly heads: trial balloons for the sole purpose of setting precedents for the explicit reasons which have to do with giving up tax sheltering vehicles in turn for “free” government backed or supplied ____________(fill in the blank) should not be lost on those watching these horizons for clues.
Remember, it wasn’t all that long ago people awoke to the change that their “cash” in a money market account no longer needed to be worth what their balance stated. It can now float via market forces along with being gated if necessary. The response? (Insert crickets here)
Currently if it were proposed forthright one could (or should) access “free” (i.e. wont be subject to negative interest rates) government back bonds; and all you needed to do to access this “great benefit” was to turn over your 401K plan? The alarm bells and uproar that would ensue would be fierce one would believe. Yet, the idea of negative interest rates just a few years ago was also considered “unimaginable.” Now? It’s becoming commonplace.
I feel the only way to re-engage in that conversation without a knee-jerk rebuttal of out right refusal would be if you first laid the premise and groundwork of another, yet smaller scale of the same idea gaining (or allowing) the acceptance of such a proposal first. i.e., The tax protected 529-Plan for a government supplied “freebie.”
Move that idea into the public. Find acceptance. (even if it’s small at first) Then: you can move the ladder quickly and propose the same idea or premise, only this time – it’s the 401K for a government bond. Or as I said earlier, ” _______________(fill in the blank.)”
No one knows whether this is the true except for those who float these type of ideas. Yet, one must take heed as to look out at the current financial landscape with all the possible contagion risks rearing their ugly heads within both the Euro Zone and more; and not be on high alert to the possibility things could once again: get very ugly – very fast.
With Greece leading the way to a possible EU breakdown along with hundreds of thousands now filling the public square in Spain to possibly do the same. The Federal Reserve along with most other politicians have to be a little more than concerned that things aren’t quite playing out as the “text books” stated they should.
© 2015 Mark St.Cyr