Imagine A Great Election

FINANCIAL CRISIS: The Candidates on the Economy

From 2 Rivals, 2 Prescriptions
The New York Times, October 15, 2008

Updates to the candidates’ economic plans:

McCain’s new $52.5 billion plans include:

• Tax cuts on capital gains.

• Tax cuts on withdrawals from retirement accounts by people 59 and older.

• Bigger write-offs for stock losses.

• A tax waiver for unemployment benefits.

Those proposals would be effective for two years.

The overall Republican economic program calls for tax cuts geared especially to individuals and businesses at the top of the income scale, in the belief that they will stimulate the economy and create jobs that benefit everyone.

McCain: “I will help create jobs for Americans the most effective way: with tax cuts directed to create jobs and protect your life savings.”

Obama’s $60 billion stimulus package and longstanding economic agenda
reflect Democratic emphasis on:

• Tax cuts for the middle class ($500 for individuals, $1,000 for couples).
 

• Tax cuts for low-wage workers.
 

• Tax cuts for the smallest businesses.

• Spending increases for public works to create jobs.
 
Obama says in the long run he would create:

• 5 million new, high-wage jobs by investing in renewable-energy industries.

• 2 million jobs by rebuilding crumbling roads, schools and bridges.

The new proposals come on top of the hundreds of billions of dollars the government has already committed to bail out financial institutions and other faltering corporations.

Yet both candidates continue to promise to reduce ballooning annual budget deficits without forfeiting big-ticket promises they made pre-crisis.

McCain stands by his vow to:

• Extend the Bush tax cuts.

• Layer on several more tax cuts, including a big reduction in corporate income taxes.

• Balance the budget by the end of his first term in 2013.

Obama vows to:

• Reduce deficits.

• Offer near-universal health care coverage and more.

“At some point,” one critic noted, “we as a nation are going to have to ask, ‘Where are we going to get the money to do all this, and at what price?’ That’s the question no one can answer.”

For now, both parties have taken the position that action is more important than short-term budget discipline.

Both proposals would likely have some short-term benefit for investors, homeowners, retirees and other groups.

But the candidates have been less forthcoming about longer-term challenges facing the U.S. economy, such as:

• A low savings rate.

• An aging population faced by rapidly rising costs of Social Security and Medicare.

Obama (like most Democrats) would provide billions in aid to strapped states, which have fewer revenue-raising options, so they can keep financing public works and avoid cutting education and Medicaid health programs.

McCain (like most Republicans) opposes sending more money to states and cities, maintaining it discourages them from cutting spending.

McCain also says his Treasury secretary would:

• Buy up to $300 billion in troubled mortgages from lenders. 

• Replace them for the homeowners with government-guaranteed mortgages reflecting their homes’ lower value.

• Ask taxpayers to pay the cost of this buyout.

“It’s not clear that either of these [candidate’s] plans would do much good,” said Leonard Burman, director of the nonpartisan Tax Policy Center.

“But the benefits of Obama’s plan would be more widely distributed. McCain’s tax proposals would help most those with pretty high incomes—the group least in need of assistance.”

McCain’s would:

• Let people 59 and older who withdraw money from IRAs or 401(k) plans pay a tax rate of 10 percent, instead of current rates of up to 35 percent for the most affluent.

• Halve to 7.5 percent the current 15 percent tax on investors’ capital gains.
 

• Raise to $15,000 from $3,000 the amount those with stock losses could deduct.

Both tax proposals would disproportionately benefit older taxpayers:

• Obama has long called for eliminating income taxes for older people with less than $50,000 in income.

• Both candidates have proposed to waive the requirement that at age 70 1/2, taxpayers must begin withdrawing their savings from retirement accounts.

• McCain has proposed a lower tax rate for older Americans who do withdraw such money, including the wealthy.

Obama would help younger savers who tap into their retirement accounts to get by in the downturn by waiving the 10 percent tax penalty for withdrawals before age 59 1/2.

Many economists object that doing so would further reduce the already low savings rate in the United States.


Obama lays out fresh economic proposals
Reuters, October 13, 2008

Senator Barack Obama has proposed immediate steps to:
 

• create jobs and

• cushion Americans against the effects of the economic downturn.
 

The proposals would costing $60 billion over two years.

They include:

• A temporary $3,000 tax credit to companies for each new job created in the United States over the next two years.

• Penalty-free withdrawals from 401(k) and IRA retirement accounts up to a maximum of $10,000 this year and next.

• A 90-day moratorium on foreclosures for homeowners who are living in their homes and making good-faith efforts to make their mortgage payments.

• A call for the Treasury to help unfreeze markets for individual mortgages, student loans, car loans, loans for multifamily dwellings and credit card loans.

• Temporarily eliminating taxes on unemployment insurance benefits.
  

• Having the Fed and Treasury prepare for guaranteeing a broader range of liabilities of the banking system.