The Trump administration is considering ways to motivate American households to invest in the stock market, according to a CNBC report. The move would be part of an upcoming package of proposed tax cuts.
The proposal would allow a portion of household income to be treated as tax-free for the purposes of investing outside of a traditional 401(k), CNBC reported citing four unnamed “senior administration officials familiar with the discussions.” Under one potential scenario, a U.S. household earning up to $200,000 could invest $10,000 on a tax-free basis, although the numbers were fluid, CNBC says.
The development comes as President Donald Trump seeks reelection in November. He has signaled a willingness recently to scale back Social Security and Medicare.
“The Trump administration is trying to pave the way for adjusting Social Security by giving people incentives to invest privately,” says Peter Cardillo, chief market economist at Spartan Capital Securities. “I don’t think a recipient of Social Security today would have anything to worry about, but future generations would.”
The White House didn’t immediately respond to requests for comment.
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“It’s a good idea to incentivize people to contribute to their savings to build up a nest egg, but I don’t think this will move the needle,” says Thomas Martin, senior portfolio manager at Atlanta-based GLOBALT Investments. “It’s hard to imagine that it would be that stimulative to the stock market if it’s geared toward Americans that already own stocks.” Just 55% of Americans own stock, according to a recent Gallup poll.
“It certainly benefits the upper portion of the income population more than the lower half. Anyone with a high salary is likely investing anyway,” says Yung-Yu Ma, chief investment strategist and managing director at BMO Wealth Management.
Last month, Trump hinted in an interview with CNBC that he would be willing to consider cuts to social safety-net programs like Medicare to reduce the federal deficit if he wins a second term.
His proposed budget, unveiled Monday, targets those programs and includes cuts to the Social Security program. The budget also includes cuts to student loan forgiveness programs.
To be sure, a new tax incentive to buy stocks could benefit some Americans since it could unleash extra spending from higher income individuals, Ma says.
Still, there are questions over how that program would be funded. It could also face challenges to get passed in a Democratic majority led House.
“This could just be political rhetoric in an election year,” Cardillo says. “The chances of it actually happening are slim.”
Courtney Subramanian contributed.