A proposal to help economy rebound

I propose a five-point plan to improve the U.S. economy:

1. For individuals with IRAs or 401(k) plans, repeal the 10 percent early withdrawal penalty for retirement account distributions and exclude the first $50,000 withdrawn from income tax for 2011 and 2012. This would generate tax-free and penalty-free money that people could use to stimulate the economy.

2. To lower homeowner mortgage payments, create a new division of the Federal Reserve to initiate, close and service mortgages. Make available refinancing for the same amount of principal balance of the “old” mortgage at 1 percent interest rate based on a 30-year life amortization table to reduce the principal and interest payments for the taxpayer. The Federal Reserve would pay off the old mortgage directly to the financial institution that holds it, with no cash back for the individual. No appraisal would be required.

3. The same new division of the Federal Reserve would offer home mortgages with 10-20 percent down payment at three levels: 1 percent on loans up to $250,000; 2 percent on loans from $250,000 to $500,000; and 3 percent on loans from $500,000 to $750,000. To reduce the chances of another housing bubble, an appraisal would be necessary. This would stimulate responsible homeownership and the construction industry.

4. For individuals who earn more than $106,800, remove the Social Security wage base limitation, making all earnings subject to Social Security tax. Tax earnings above $106,800 on a graduated scale. Reduce the employer’s share from 6.2 percent to 4.2 percent, to match the employee’s portion. This raise revenue and reduce the tax burden on smaller employers.

5. To raise money to fund programs to shore up our social safety net (unemployment, health care, education) a 20 percent surcharge would be imposed on all imported goods.

Frank J. Pavlica, CPA

Inverness