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Barack Obama Proposes Six Ideas to Ease the Economic Crisis

This article was written by in Economy. 9 comments.


Each major presidential candidate is making his presence known and ensuring his name is constantly in the media as next month’s election approaches. Recently, Democratic candidate Barack Obama announced six action steps to help heal the economy in this country and across the world. Five of these are “new” ideas, and one was originally proposed by Republican candidate John McCain.

1. Allow penalty-free withdrawals from 401(k)s and IRAs. For most early withdrawals from retirement accounts, the Internal Revenue Service assesses income tax as well as a 10% penalty. Obama would like to let these withdrawals in 2008 and 2009 slide without penalty. Income taxes would still apply.

This would benefit individuals already planning to make hardship withdrawals, or since the exemption would be retroactive to January 1, 2008, individuals who have already made hardship withdrawals. It shouldn’t be much of an incentive to choose a retirement withdrawals over other options, since the account owner would still owe income taxes on the amount of the withdrawal.

2. Don’t force retirees to take distributions from IRAs and 401(k)s at age 70.5. Normally, individuals are required to draw down their retirement plans. This is a good move when the market is significantly down from last year, as it is right now.

The required withdrawal amount for 2008 is a percentage of your December 2007 balance. Unfortunately, since the market has declined since December 2007, what was 10% of your balance in 2007 may be 20% of your balance today. Removing the forced minimum distribution will allow retirement nest egg balances to recover with the market, assuming the market does in fact recover.

3. Allow the Federal Reserve and the Treasury to lend directly to state and local governments. I’ve seen the yield on the Vanguard New Jersey Tax-Exempt Money Market Fund VNJXX), which invests in state and local bonds in my state decrease since I first invested in the fund a few weeks ago. This could be indicative of the financial problems that might affect this state.

This move could help stimulate local economies through giving states the ability to meet their obligations.

4. Provide a $3,000 tax credit in 2009 and 2010 to companies for every new employee they hire. This move has the possibility of offsetting the price of expensive American labor in comparison to workers oversees. But will this help create new domestic jobs? I’m not sure that $3,000 per hire is enough as an incentive.

5. Extend unemployment benefits and exempt the benefits from income tax. By adding 13 weeks to the unemployment coverage period, Obama intends to provide help for those unemployed for more than six months. Without the IRS collecting tax on unemployment benefits, unemployed workers will have more money to spend on necessities.

Unemployment rates are still historically low, even within this economic crisis. Is Obama preparing for higher unemployment if a recession continues? If the economy does not improve and more people find themselves out of work, will this plan still be affordable?

6. Any financial institute that accepts help from the government will place a 90-day moratorium on foreclosures. This would give the lender and borrower more time to work out an agreement, as long as the borrower is acting in good faith. I have mixed feelings on this. In many cases, homeowners made bad choices when purchasing houses they could not afford, but I can’t expect people to always know the financially correct decision when there was misinformation perpetuated by the mortgage industry.

I’ll take a look at McCain’s suggestions when I receive more information about his plans.

What do you think of Obama’s ideas?

Published or updated October 14, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 9 comments… read them below or add one }

avatar Independent Voter

Obama called #6 “disastrous” when it was Hillary Clinton’s idea, now in typical form he is spinning and back tracking, and pointing back to what he “really meant” A link is posted below to the story on politico.com.

Anything to win the election I guess. Its sad when the only two things he has going for him is that he isn’t GWB and he isn’t a Republican.

Any guy that has Robert Rusch on their panel of economic advisors is questionable in my opinion. Rusch is one of the many people who have advocated and succeeded in manipulating unemployment data in order to fudge the numbers and make them look better for the administration they worked under, that is not what we need right now, or ever. We have enough problems with people toying with the numbers to benefit them, and this type of behavior is now considered “change” I guess?

link

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avatar Twiggers

The one I find interesting is the unemployment one. I see pros and cons:

1. This is great news for workers who truly cannot find a job. I live in RV country and many of the unemployed workers here cannot find comparable jobs because the whole industry is suffering.

2. On the other hand, does this just encourage workers to sit around for another 3 months? That is not a good thing.

3. This will hurt many states. There are reports that several states are close to having their UI monies dry up because of high rates. Adding another 13 weeks will further strain the state governments (unless the feds are planning on supplementing these 13 weeks).

4. The taxes thing I am up in the air about. It is income and all income should be taxed. Shoot, my gambling wins at the casino are taxed, so why shouldn’t UI benefits? I understand that times are tough when you are on UI (my hubby was on it about 5 years ago for 8 weeks) but you can elect to defer the income tax and just pay it at tax time when you are, hopefully, working again.

At least he (Obama) has a clear plan though. I do like that!

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avatar CJ

While I really haven’t cared for Obama’s policies thus-far (raising taxes on corporations during a recession seems detrimental to me), most of these seem pretty good.

Personally, I’m still voting for Bob Barr as I think both candidates are idiots, but at least now I feel like Obama won’t completely screw things up in the meantime if (when?) he becomes president.

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avatar Michael

The “No penalty withdrawl from 401(k)” is GENIUS. Let people remove what little savings most of them have NOW, so that when the are in really deep crap LATER, it’ll be someone else’s administration that has to deal with it.

Idea #1 is a loser.

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avatar Tom

I do not agree with 4, 5 and 6:

4. American labor is expensive in a large part because of our labor unions. Globalization is the a key factor in the success of many companies and labor unions refuse to accept that. Look at Boeing. Their labor union is on strike because of job security. Boeing refuses to give in on the globalization part of the contract, it is a key strategy for their future growth, and a good strategy from what I’ve read. This is the same for most other global companies. Penalizing a company because they send work overseas will only stunt growth, why? Because almost every global company is doing it! What they need to do is give big tax credits for R&D done in the US. This will create thousands of jobs while promoting growth, and even attract many new companies to the US.

5. I completely agree with your comments. Must be more oversight in unemployment benefits. My sister worked for 2 months, got fired (long story), then started collecting unemployment. Was she looking for another job? No! but she still got benefits!

6. Who’s to say that these borrowers will be able to afford anything at all? We can’t be bending over backwards for the people that NEED to have their houses foreclosed. These people should never have bought a house in the first place.

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avatar Jamie Bernard

Tax breaks amount to pennies compared to the money your 401k loses when markets are tanking. Vote for the candidate you believe will keep inflation low and market growth high.

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avatar Tyler @ BSCC

Yeah, I like the fact about letting us withdraw from our 401K without penalty.

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avatar David B

I definitely agree with Tom on 4 & 5. Number 1 seems like a terrible idea. Why should the government be encouraging people to liquidate their retirement accounts when the market is at record lows? It will only provide an avenue for those with skiddish tendencies and low risk tolerance to pull their money out and miss the upswing in the market.

Number 2 is a great idea that both candidates have suggested. Letting people who would normally be forced to take retirement distributions at these incredible lows would be extremely disappointing for those in that situation. Allowing them to choose to ride it out a little longer if they desire seems like a reasonable measure.

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avatar Andy

I did a recent review of both candidates financial policies and depending on your current and expected financial position in life both candidates offer some useful benefits. Personally as a higher than average income earner I like McCain’s tax and investing (CGT) breaks, but as a nation I think we would be better off under Obama. However, as things improve Obama must adapt his plans and control government spending (and hence our National Debt) to keep our national economic growth sustainable over the long term. I also hope that the next president adopts plans that are in the best interest’s of the nation and not their own party and special interests.

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