Eight Financial Laws and the Big Names Behind Them
Financial Laws and Their Namesakes
What's in a name? When one is attached to federal legislation, it usually means that the bill was introduced or championed by the lawmaker for which it is named.
Other times a public policy measure is named for a private citizen who was instrumental in its creation or whose public stature helped elevate the issue.
Most of the time, having a law named for a person is an honor, a tangible declaration of a person's hard work.
But occasionally the honor becomes a burden.
Read on to learn about eight federal financial laws or proposals and the people for which they are named.
Bush Tax Cuts
When former President George W. Bush was in office, he signed tax changes into law in 2001 and 2003. These provisions quickly became known as the Bush tax cuts.
They added a new, lower 10% tax bracket and cut the tax rate for the highest-income earners to 35%. The tax rate on capital gains and certain dividends also were cut. Now the top rate is 15% and taxpayers in the 10% and 15% tax brackets don't owe any capital gains taxes at all on profits.
The tax cuts were scheduled to expire on Dec. 31, 2010, but Congress and the Obama administration agreed to keep them in place through 2012.
Now as the current tax laws near yet another expiration date and presidential campaigns hit high gear, the tax policy debate is intensifying, too.
And the 43rd president has said that he wishes the tax laws didn't bear his name.
"I wish they weren't called the Bush tax cuts," Bush said during an address at an April 9 tax policy conference. "If they were called some other body's tax cuts, they'd probably be less likely to be raised."
The Buffett Rule
Everyone knows Warren Buffett, the unassuming Midwesterner whose investing style has created one of the world's most valuable companies and whose financial expertise regularly lands him near the top of "the richest" lists.
He's already known as the Oracle of Omaha. Now he's got a new title: the namesake of the Buffett Rule.
This is a proposal by President Barack Obama and U.S. Senate Democrats to enact a minimum 30% tax rate on individuals who earn $1 million or more. The idea was prompted by Buffett's announcement that his tax rate is lower than that of his secretary.
The reason for the tax rate disparity? Most of Buffett's income is from capital gains and qualified dividends that, thanks to the Bush tax cuts, are taxed at rates lower than the ordinary income earned by most taxpayers, including apparently Buffett's secretary.
Bowles-Simpson Plan
In early 2010 amid growing concern about the federal deficit, President Barack Obama appointed a bipartisan group of Washington economic and political leaders to devise a way to get the country's spending under control.
Erskine Bowles, chief of staff under Democratic President Bill Clinton, and Alan Simpson, a former Republican senator from Wyoming, were named to head the effort. The panel's efforts henceforth were known as Bowles-Simpson, although some on the Republican side of the aisle flipped the names.
Ten months after formation, the chairmen released a draft and then their full, but unratified, report. The reason for the lack of enthusiasm: The Bowles-Simpson plan called for the elimination of popular, but costly, tax deductions, exemptions or credits for specific categories of taxpayers.
Bowles-Simpson argued that by getting rid of such things as the mortgage and charitable donation deductions, the current six income brackets and tax rates could be reduced to just three: 8%, 14% and 23%.
The plan was revived during the recent House budget debate, but was again rejected. Still, some of the Bowles-Simpson ideas might eventually show up in future legislation.
Roth IRA
In 1998 Americans were able to invest in a new retirement savings plan, the Roth IRA.
This account offered a big advantage over the traditional IRA that had been around for almost a quarter of a century. Workers now could contribute after-tax dollars and let them grow until retirement, when they could be withdrawn tax-free.
This major change in retirement saving was named after the legislation's chief sponsor, the late William Roth, senator from Delaware.
The Roth IRA has become a favorite of taxpayers who don't want to worry about tax bills on retirement distributions. In addition to the tax-free earnings feature, the Roth also allows account holders to contribute for as long as they like (traditional IRA contributions must stop when the owner is 70½) and money can stay in a Roth IRA for as long as the owner wishes (required minimum distributions are required of traditional IRAs, again when the owner turns 70½).
Earnings limits prevent some taxpayers from opening or contributing to a Roth. However, these individuals can open a traditional IRA and then convert it to a Roth because that income limit has been eliminated.
Coverdell Education Savings Account
This tax-deferred savings plan used to be known as an education IRA. But it was revamped in 2002 and named in honor of the late U.S. Sen. Paul Coverdell of Georgia, who championed the changes.
Up to $2,000 can be contributed annually to Coverdell accounts. Anyone who meets the plan's earnings limits can put money into the account, which is held in the name of and benefit for a child's education. The contributions aren't deductible by the donors, but the earnings grow tax-free and, when certain requirements are met, withdrawals from the account also aren't taxed.
In addition to paying for some college expenses, Coverdell funds also can be used for certain pre-college expenses, including books, tutoring and computers for public, private or parochial elementary and secondary schools.
You can open as many Coverdell accounts as you wish for a child, but no more than $2,000 per year can be contributed for the student, regardless of how many accounts he or she has. Contributions also aren't allowed once the youngster turns 18, unless the beneficiary is a special needs child.
Dodd-Frank Act
The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 is the most far-reaching overhaul of financial reform since the Great Depression.
Named for its co-sponsors, Sen. Chris Dodd, a former lawmaker from Connecticut who now heads the Motion Picture Association of America, and Rep. Barney Frank of Massachusetts, the act was crafted to address concerns that were highlighted during the financial crisis of 2008.
Among the Dodd-Frank changes are increased oversight and supervision of financial institutions, a new resolution procedure for large financial companies, stringent regulatory capital requirements and changes to corporate governance and executive compensation practices.
The act also created the Consumer Financial Protection Bureau, which began operation in 2012. This new agency is responsible for, in part, implementing and enforcing compliance with consumer financial laws. In addition, the bureau also promotes increased consumer financial education.
Volcker Rule
The Volcker rule, which would place trading restrictions on financial institutions, is part of the Dodd-Frank Act.
It is named after former Federal Reserve Chairman Paul Volcker.
The Volcker moniker was attached in much the same way as the Buffett Rule got its name. Volcker did not work on the actual legislation, but he was the economist who recommended a new basic financial rule: There should not be conflicts of interest between bankers and their customers.
Essentially, said Volcker, banks that accept deposits should be prohibited from investing money for the financial institution's own gain.
The Dodd-Frank Act codified the Volcker rule, and it's scheduled to take effect this summer, with a two-year compliance grace period for financial institutions. Even then, financial institutions have a two-year grace period to comply with the rule. It would prevent banks from owning, investing or sponsoring hedge funds, private equity funds or proprietary trading operations for their own profit if they are unrelated to serving bank customers.
The goal of the Volcker rule is to prevent the need for future federal bailouts of banks.
"You shouldn't run a financial system on the expectation of government support. We're supposed to be a free enterprise system," Volcker told PBS newsman Bill Moyers in an April 5 interview.
Stafford Loan
A Stafford loan is a financial aid option for college students.
The low-cost federal loan program was created as part of the Higher Education Act of 1965, which itself was part of President Lyndon B. Johnson's Great Society domestic initiative.
The college loan program was renamed in 1988 after Robert T. Stafford, a former U.S. Senator who represented Vermont. The Republican lawmaker's colleagues respected Stafford's work on higher education reform and so named the loan after him.
Stafford loans are available in both subsidized and unsubsidized versions.
Loans through the Federal Family Education Loan Program, or FFEL Program, were provided by private lenders, such as banks and credit unions, but were backed by the U.S. government.
Loans through the Federal Direct Loan Program are provided directly by the U.S. government to students and their parents. Currently all federal student loans are administered through the direct lending program.
The loan rate is fixed for the life of the loan until it is repaid. Recipients might be able to deduct some of the loan's interest on their tax return.