…but when I do, my arithmatic is off by an order of magnitude!
The first iteration of KidSave, in simple terms, was this: Each year, for every one of the 4 million newborns in America, the federal government would put $1,000 in a designated savings account. The payment would be financed by using 1 percent of annual payroll-tax revenues. Then, for the first five years of a child’s life, the $500 child tax credit would be added to that account, with a subsidy for poor people who pay no income [tax]. The accounts would be administered the same way as the federal employees’ Thrift Savings Plan, with three options—low-, medium-, and high-risk—using broad-based stock and bond funds. Under the initial KidSave proposal, the funds could not be withdrawn until age 65, when, through the miracle of compound interest, they would represent a hefty nest egg. At 5 percent annual growth, an individual would have almost $700,000.
In a pig’s eye! Depending on how you compound it and when you apply the tax credits, it actually produces somewhere in the neighborhood of $70,000 at age 65. Figure a modest inflation rate of 3.5% and the purchasing power would be about $30,000 in today’s dollars.
Coming up next, the author will explain why recessions are the result of a Keynesian liquidity trap rather than bubbles resulting from malinvestment. That should be good.