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John McCain’s Proposal to Ease the Economic Crisis

This article was written by in Economy. 20 comments.


Following Barack Obama’s proposals announced earlier, Republican candidate John McCain has outlined the steps he would take as president to help spur the economy in the United States.

1. Eliminate taxes on unemployment benefits. Like the Democratic candidate, McCain suggests eliminating taxes on unemployment insurance to make sure that those individuals out of work have a better chance of paying their rent, mortgage, or other necessities each month. He stops short of extending benefits over a longer period of time.

2. Cut the capital gains tax to 7.5% for two years. This will inspire more investment in businesses, which in theory “trickles down” to the rest of the economy. McCain would also reduce the tax rates on IRA and 401(k) withdrawals (up to $50,000) to 10%, the lowest tier.

3. The government should only buy shares in private banks until they are sound. McCain isn’t happy about the plan to partially nationalize private institutions, but he seems to agree that Bush’s plan is solid in the immediate term.

4. The Treasury Department should guarantee 100% of all savings for six months. The FDIC recently increased the insurance limits on deposits to $250,000 from $100,000, which means more of your money is “safe” in banks. I don’t know many individuals who keep this much money earning miniscule interest rates in savings.

The original increase to $250,000 was a move that would help small banks attract deposits of large corporations that spread enormous amounts of cash across many institutions. McCain’s plan to insure without limit eliminates the need for large corporations to spread their cash around to smaller banks. This might result in more money being concentrated in a smaller number of banks.

I don’t think that this side effect outweighs the psychological benefit that might be presented with the idea that you can “entrust” banks and the FDIC with more of your money.

The price tag on John McCain’s outlined plan in $52.5 billion. What do you think of McCain’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 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 Luke Landes and follow him on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar Lance

I believe the increase and the 100% for 6 months on non-interest bearing accounts is intended for small business owners who use the accounts for day-to-day activities and to make payroll, eliminating the need to spread their money around to different banks.

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avatar creditcarddude

Re #4, there’s a lot of cash parked on the sidelines these days. Anyone with sense knows the dodges you were able to use to get around the FDIC’s old $100k limit (such as open a second, joint account with a spouse, have a third account in spouse’s name, etc.).

So you may be surprised at the number of jumbo accounts. Yes, the interest rates are minuscule, but at least the pile of dough gets bigger. Money in equities hasn’t been able to say that lately (my 401(k) is down to around a 301(k) these days).

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avatar Rob

Is he joking about #2? The capital gains tax is largely a “rich person’s” tax. The fact that it’s lower than regular income tax is already a slap in the face to regular people. Warren Buffet said it best himself – his secretary pays a far higher tax rate than he does!

Lowering the capital gains tax further than it already is will simply benefit the rich and the super-rich, period. These folks will scoop up tons of stock at low prices, and enjoy the insanely low taxes. Everyday people will continue to struggle, since they don’t have the spare funds to invest. Ugh. What world does this guy live in? Oh that’s right… the kind of world where he doesn’t know much much gas costs, how many cars he has, or how many houses he owns.

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avatar Independent Voter

Rob,

I am neither rich, or super-rich…nowhere near either of those actually. I do however have some stocks that pay a decent dividend, and if I can keep an extra 7.5% of that it will help to do things like offset increasing gas prices and/or the inflation we will see due to these bail outs.

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avatar Rob

I have stocks as well.. though not nearly on the same level as the rich. Sure, if I can keep a little extra I won’t complain. But it will mean a pittance for me, and thousands / millions for the wealthy. We don’t need more programs to help the ultra-rich keep *more* of their money.. they certainly don’t need any assistance in that area.

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avatar Jesse

Rob, tax breaks will always benefit the rich more than the poor when looking at the actual dollars saved. If I have a cap gain of $200,000 as a rich person, and I save 7.5%, I’m obviously going to always save more in taxes than the guy that has a $1,000 capital gain and saves 7.5%.

If income tax rates cap at 350,000 and they lower that highest rate from 35% to 30% and I have $1,000,000 above the $350,000 amount then I’m going to save 5% on that $1,000,000 — where the guy making $355,000 will save 5% on the $5,000 above the $350,000 amount. Rich guy “saves” more.

I don’t think we should tax capital gains at all. I also don’t think we should tax fortunes when people die.

I think we tax too much period. A third of every new dollar earned goes to the Federal government? And that doesn’t include FICA, gas, hotels/phone, state and local taxes. It’s insane.

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avatar Adam Lehman

OK. does the “trickle down” thing really work?
wait, i think it does, to an extent….
let me rephrase that questions….
couldn’t it also be argued that wealth “trickles” up?

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avatar Writer's Coin

The thing that bothers me about the cap gain thing is that so many CEOs that make millions of dollars won’t pay taxes that we all do. They regularly have salaries of $1 or something like really low as a way to say “look, I’m not in it for the money.” Instead, they use their capital gains as their salary. Cutting the cap gains tax means the government will be turning down 7.5% of these millions of dollars that are regularly treated as salaries. Why would you give that money up? How do you explain to taxpayers that millionaires will pay less in taxes when they already use this cap gain loophole to pay less taxes than we do?

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avatar Sean

more questions than answers…

Idea #4 – do we create a bigger whiplash at the end of 6 months? If so, is it being anticipated and coordinated with everything else that is planned? If we get people to stop paying attention to FDIC altogether, can we still go back and lower the limits?

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avatar Chuck Pearson

I like the idea of reducing the taxex on 401K retirement withdrawals. Lets say you are retired and you need a car that cost $25,000. IYou decide to take $25K out of your 401K retirement account.

If No changes were made to the laws, you would withdraw $25K and find out you had about 20% or possibly more taxes taken from your withdrawal ($5000) which means you actaually only get $20,000 becasue of the taxes you must pay on withdrawals from 401Ks.

Under McCains proposed limit of 10% tax on 401K withdrawals up to $50K, your $25K withdrawal would only be cut by $2500 tax bill instead of $5000 and give you $22,500. Thats a help for someone on a fixed income and $4.00/Gal gas.

This proposal would also give people another reason to save for retirement in a 401K since you dont pay taxes on the money going in and you get a break on the tax burden when the money is taken out during retirement.

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avatar Lee

McCain has officially lost the plot.

Capital Gains tax cut?

As previously mentioned, mostly benefits the rich, and in any case, who exactly is making any capital gains on the stock market lately?

And the tax cut for senior citizens who want to tap into their retirement accounts early? Aren’t we trying to inject capital into the market at the moment? It seems to me that all this will do is encourage people to withdraw capital from the market, making the current situation even worse!

Seems like a plan from a candidate increasingly desperate to patch up some votes rather than a coherent economic policy of any sort.

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avatar CJ

Re #2.

History has proven that every time an Administration raises Capital Gains taxes, the revenues from those taxes actually goes down. That’s why Clinton reduced capital gains during his term and it’s why Bush reduced capital gains further during his term. It’s really actually quite stupid to raise capital gains tax as history shows it actually hurts both the economy and government revenue.

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avatar MattA

We should be focusing our anger and rants at corporations, not “the rich”. According to a Reuters article, MOST companies get away with paying little to no taxes. link

I see no problem with individuals being permitted to withdraw from their 401k, especially if it helps them stay out of Forclosure, for instance. Or, if they choose to invest in something “safer”, like a long-term CD, let them!

FYI, if you make more than $31,987 (a low starting salary), you are considered to be in the “top 50%”. If you make more than $64,702 (a respectable salary), you are in the “Top 25%”; and, btw, the top 25% are also paying over 86% of ALL income tax collected. I am not not rich, by any standard, but I do know that the “rich” in America pay the MAJORITY of all income tax collected.

Sources: 1 2 3

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avatar Independent Voter

Lee,

Capital gains apply to dividends also, and I’m still getting those since I pretty much only have stocks that pay dividends right now as a hedge against the market turning and the economy softening.

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avatar jde

“…there has never been any school of economists who believed in a trickle down theory. No such theory can be found in even the most voluminous and learned books on the history of economics.” Thomas Sowell

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avatar David B

My biggest problem with the capital gains tax is that it ends up taxing people twice. When I buy stock, I use money that I have earned through my income and have already paid taxes on. Then, if I invest that money in stocks and it grows, I get taxed again. I’d like those who are so concerned about “fairness” to explain to me how that is fair.

We shouldn’t be discouraging people from investing. If we encourage more people to invest, then companies have more capital to expand, which creates more jobs, and rewards their shareholders and customers. Lowering the capital gains benefits the economy as a whole, which in turn generates more tax revenue (as others have already pointed out).

The only counter argument I have seen is from people who are jealous of a handful of rich people. The difference with executives who are paid in stock, rather than with a direct salary, is that their income is not a guarantee. If they manage their respective companies poorly, the stock will decline and their compensation will decrease. This creates a positive incentive for executives to do what’s best for their companies, and their shareholders (which they are themselves). Raising the capital gains tax solely because you want to stick it to the rich is cutting off your nose to spite your face.

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avatar Compounding

McCain needs to outline his healthcare proposals better. Obama is blatantly lying about and misrepresenting McCain’s concepts. Obama keeps talking about a “level playing field,” but the current tax policy related to healthcare costs is anything but level. Presently, you can only write-off healthcare expenses you incur that exceed 7.5% of your AGI, except for people that receive healthcare benefits and cafeteria plan deductions (for premiums, HSA and FSA). So, if your employer does not provide coverage or reimbursement of any sort, of if you are self-employed and don’t use some sort of scheme where you employ your spouse and pay for his/her coverage, then you do not get any tax benefit for healthcare expense.

With McCain’s plan, all employer provided benefits for healthcare become taxable income (the average cost nationwide for these benefits, including employer and employee costs, are $12k). Then, everyone receives a $5k tax credit. Based off of average cost, your marginal tax rate would have to exceed 41% for it to cost you any more, which means that most people would receive an even great tax benefit from this than they currently receive. This puts everyone on a level playing field.

I checked what it would cost for me to get as identical coverage as possible if I were to purchase my coverage on my own. I checked with my current insurer and the plan would cost me only $80/month more than my current premiums, and the total out of pocket would be cheaper after reaching the same deductible. My employer covers over $400/month of my premiums based on COBRA that I investigated, meaning that under this plan, I could go and get my own coverage and it would reduce my taxable income by another $3840. I think that this could truly remove the dependence that most people have on their employers for coverage, allowing them to get exactly what they want, and have it fully portable.

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avatar kitty

Is he joking about #2? The capital gains tax is largely a “rich person’s” tax. The fact that it’s lower than regular income tax is already a slap in the face to regular people. Warren Buffet said it best himself – his secretary pays a far higher tax rate than he does!

Maybe. But the problem is that this tax break encourages investing. More investing = more money for your employer. More investing = higher 401K value for all of us.

Rich people’s selling to lock gains while the rate is still low = lower stock prices. I am sick of watching my 401k go down… Aren’t you?

People who bash “trickle down” use generic words without looking at facts. Maybe tax breaks for your employer translate in higher raise for the CEO than for you, but lack of tax breaks for your employer definitely translate to no raise for you at best and layoffs at worse. Think what your employer is going to do when its taxes go up: reduce CEO pay or reduce your pay. I think prior history gave us the answer.

When people think how 250K is “rich” and they don’t care because they earn less. I earn less too. But businesses that earn less than 250K don’t hire people. Businesses that earn more than 250K do.

As to wealth redistribution – they tried it in Soviet Union. Didn’t work out very well, did it?

The economy is horrible now. Raising taxes on investment will cause us – all of us, not just rich – can put it into depression.

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avatar middleman

By and large taxes are necessary. We all understand that. We need a military & police. We need roads and infrastructure. That said, taxes can also be used to guide financial direction. As stated by others, a reduction in capital gains merely encourages short term investments for the purpose of personal enrichment(engorgement?).

When it comes to taxing the rich vs. poor, the rich always locate a way around it. Use a national sales tax, and the rich purchace goods through their companies. Use income tax, and they take stock in leu of a pay. There will never be a completely equitable solution. We can enforce some common sense. We can re-institute a long vs. short capital gains tax to encourage long term investments into our companies and curtail short term enrichment. We can treat dividends as standard income to encourge more companies to focus on long term stable growth rather than short term spurts.

Allowing penalty free 401K withdrawals, will only push today’s mortgage problem into tomorrows going hungry (at retirement) problem. But we can artifically lower the interest rates on 401K backed loans. And if a we loose our job, those loans can be carried forward to the next job rather than suddenly having to cough up our 401k savings. The time period for repayment can be extended to 10years instead of the present 5. This will allow people to amatorize there debt over a longer period of time and increasing their personal cash flow.

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avatar klassic

i think this debated was phonemal because it stated everything a person would expected my opinion is barack obama won this debated not because he`s black because he is a on my own person and many more.

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