Who's your daddy? The Fed expands its role in your personal life

Some call it consumer protection. Some say it's necessary because government regulation has broken down and failed us, even though some who are expressing that opinion were heavily involved in the breakdown. Others see it as an ever-growing insult by the federal government, telling us that we are not smart enough to make good decisions, therefore we must leave it up to them. What's the target this time? The Fed is upset because you are not saving enough of your paycheck for a rainy day, and they intend to do something about that by taking your money before you get a chance to spend it. Very few details have been released, but here is the basic plan as reported by The Wall Street Journal.

If currently proposed legislation creating the new Consumer Finance Protection Agency (CFPA) is made into law, the federal government will create a savings account for you, and instead of sending you your tax refund, your overpayment of taxes will automatically be deposited into this account. Any pay raises you earn on your job will not show up in your paycheck, but will also be siphoned off into the new savings account. Out of sight, out of mind, might be the philosophy. You will have the ability to opt out of the new forced savings plan. But supporters of this program say by opting out, you are making a conscious choice not to save... and the federal government is counting on you to not make that decision.

What do CPAs think about this program?

One CPA suggested, tongue-in-cheek, that there might be one good thing about this plan. That is, more and more taxpayers might turn to accountants for help to ensure that they do not qualify for tax refunds.

Some CPAs have expressed the view that, while many Americans lack basic money wisdom, a better plan would be to offer more free financial education starting in high school and made available to the public. CPAs as a group do exactly that. As part of the Feed the Pig campaign, CPA volunteers in most states provide free resources to help individuals interested in learning more about financial responsibility.

Points Congress might consider regarding the new required savings plans:
  • If you opt out of the required plan but have a savings account of your own, will it have to be government controlled?
  • Assuming you allow the government to place your money in a government controlled savings account, how will you have access to it?
  • What access will the government have to your money? Suppose you incur an unpaid obligation to a federal agency, such as the IRS. Will the government have the power to freeze your account or to take money out of your account to satisfy the debt?
  • Will this forced savings apply to members of Congress and other government workers?
  • Once you have permitted tax refunds and raises at your job to be diverted to a government savings account, will future legislation cause other amounts to be similarly diverted, such as bonuses, inheritances, increases in pay you receive by changing jobs?
  • Will the opt-out privilege ultimately disappear?
  • Will you be taxed on the money from your job that goes into this account at the time the money is earned or at the time you withdraw it?

CPA Scott Heintzelman, of Pennsylvania's McKonly & Asbury and member of AccountingWEB's Bloggers Crew refers to President Obama's plan as "behavior economics." He wonders why the government would choose this path, rather than rewarding wise decisions and letting unwise decisions lead to their natural results.

"This is just more of the government taking over our decision making and trying to protect people from themselves," says Heintzelman. "What makes our country great is that we all have the opportunity to pursue happiness. This means that we all are allowed the opportunity to succeed and also the opportunity to fail. If our government takes away any risk of failure (like bailouts, behavior regulations...), we will one day wake up with no freedoms and no hope for a better future."

"This is no different than a parent that continues to make all decisions for children instead of allowing them to make bad choices and suffer the consequences. It is not bad parenting to allow a child to suffer some negative consequences (especially early in life when the consequences of those decisions are less significant) because it teaches them to make better choices in the future (when the consequences are probably much more significant)."

The Justification

We're lazy. We don't save and we don't fund our retirement accounts. The Obama Administration is looking at a long list of ways that we might stumble into financial trouble either by not setting aside money or by making unwise choices, and the new savings plan is evidently devised to protect us from our own lack of sophistication. That's why President Obama is proposing the creation of the watchdog organization CFPA, which will stand guard over such things as the mortgage industry, financial products, pay day loans, tax preparation, credit cards and more.

At this point, it's unclear whether Congress will vote to include the enforced-savings program in the final rendition of the CFPA or not. But what is clear is that many members of Congress have sworn to push this new program through by early August.

Not long ago you may remember a change in law encouraged employers to automatically enroll employees in 401(k) plans to create retirement savings - unless the employees opted out. Participation shot up, and that increase seems to have emboldened the government to do the same thing with savings accounts.

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