[IMGCAP(1)]I propose a six-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repeal the 10 percent early withdrawal penalty for retirement account distributions and exclude the first $50,000 withdrawn from income tax for 2011 and 2012.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 save their homes and pay for other living expenses, thus stimulating 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 a 1.0 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. Thousands of new jobs would be created to administer this program, while at the same time keeping people in their homes.

3. For purchases of principal residences, the same new division of the Federal Reserve would offer mortgages with 10-20% down payment at three levels: 1.0% on loans up to $250,000; 2.0% on loans from $250,000 to $500,000; and 3.0% 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 home ownership 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: 2.2 percent on earnings from $106,800 to $150,000; 3.2 percent from $150,000 to $250,000; 3.7 percent from $250,000 to $500,000; and 4.2 percent on earnings above $500,000. At the same time, reduce the employer’s share from 6.2 percent to 4.2 percent, to match the employee’s portion. This would be a revenue raiser, while at the same time reducing the tax burden on smaller employers.

5. To raise money to fund programs to shore up our social safety net (unemployment, health care and education), a 20 percent surcharge would be imposed on all imported goods. This would be paid monthly (like sales taxes) by the importers. This would be a revenue raiser and encourage domestic production.

6. For manufacturing companies that produce goods using 100 percent U.S. labor, parts and materials, institute an income tax credit. This would encourage domestic production and increase employment.

Frank J. Pavlica, CPA, is a sole practitioner in Inverness, Ill.

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