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?
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?
Knight Kiplinger is the editor in chief of Kiplinger’s Personal Finance magazine and Kiplinger.com, and in the November issue, he has published an editorial that gets to the core of what must be done to adapt to today’s economic reality. A link to the online edition of the article was sent to me by a publicity agent, but despite thism I wanted to share it with readers.
Kiplinger, the individual, has nothing to lose by making bold statements about the economy, unlike our presidential candidates who have to worry about alienating voters. The editor in chief does report to the board of directors of the publishing company, so I’m sure he couldn’t fly too far off the handle. Appropriately, the editorial is fitting the rest of the publication.
First, he lists America’s eight toughest economic problems, summarized here:
- Overconsumption and undersaving by individuals and the federal government
- Soaring old-age entitlements
- Addiction to fossil fuels
- Dependence on imported oil
- An overly ambitious foreign policy of promoting democracy by forcible regime change
- Failing public schools and inadequate vocational training
- Uneven access to health care
- A broken immigration system
Kiplinger goes on to provide solutions, both governmental and private, for these issues. Some of these solutions may be controversial. For example. here’s what the article proposes to reduce federal spending.
Voters should insist that Congress begin reducing the federal budget deficit, starting first with spending restraint. Tax hikes could come later–but only if proved to be needed.
My nominees for frozen or gradually reduced federal spending: military hardware; a wide array of subsidies to business, especially energy and agriculture; and health care for the elderly and poor (not less care, but more efficiently delivered).
My candidates for higher federal spending: support for elementary and secondary education, basic scientific research, and infrastructure (bridges, airports, harbors and parks).
The article contains a number of interesting suggestions for improving the economy and the quality of living in the United States. Read the article, A New Economic Agenda.
I didn’t think this was even already in motion, but I’m happy to report that the proposed “Bill of Rights” for credit card-holders (which is almost every adult) passed through the House of Representatives by a huge margin: 312 to 112.
It’s amazing that 112 Representatives would even vote against such a thing, which has no downside that I can see.
Read the whole story at the New York Times.
American Presidential elections are a great big spectacle of promises, speeches, mud slinging, rumors, misinformation and debates. A lot of people make their decisions based on soft aspects like a candidate’s personality. I like to look for the hard numbers that you won’t find on the nightly news, and I found a good summary of the Republican and Democratic tax plans’ proposed effects at CNN Money.
The difference is noticeable mostly for people who earn ridiculous amounts of money: the Obama plan would increase their taxes dramatically. But for most people, it looks like either choice won’t make much of an impact. For my family, it means a difference of only a couple hundred dollars.
There are some important caveats in that CNN article that you should read in full in order to be properly informed if this issue is going to play an important part in helping you make your election decision.
The presidential candidates are fighting hard for your vote, and the economy seems to be one of the top issues. To soothe jitters over an economically turbulent near future, Senator Barack Obama proposed a second economic stimulus payment, similar to the one proposed and passed by President Bush and Nancy Pelosi earlier this year.
It’s dubious whether these payments have a direct effect on the economy. They may make some people feel better about the economy — depending on whether they receive a check or they subsidize the benefit for others — which may be a self-fulfilling prophecy. It’s more likely that these proposals designed to boost the economy, which have a nasty habit of showing up in election years or when approval ratings are low (is it just coincidence?), are created more for their public relations benefit.
Similarly, Senator John McCain is calling for a federal gas tax “holiday.” The 18.4 cent national gas tax and the 24.4 cent diesel tax, under this plan, would be suspended between over the summer. Originally planned for the time between Memorial Day and Labor Day, McCain’s campaign website hasn’t updated this issue now that we have passed the first summer holiday.
Someone who believes that gas prices at the pump are determined by supply and demand would argue that lifting a gas tax would simply allow prices to rise up the chain.
Neither a second economic stimulus check nor a gas tax holiday will on its own affect the economy much. It would be great to see some real economic proposals presented by our presidential candidates — ideas whose implementation would provide jobs, manage real inflation, and encourage business innovation while this country learns how to deal with globalization of the economy — rather than gimmicks designed to attract potential voters.
Let’s face it, though, it makes no sense to choose a candidate based on their economic policy, something the Office of the President has little control over thanks to the numerous people involved with setting policy and economic cycles. I can’t imagine that anyone in this country is undecided between McCain and Obama, but the final decision should be based more on who you want appointing Supreme Court justices and who you want initiating military actions (something that used to be left up to the Congress). These are the modern major powers of the Presidency with lasting effects.
McCain resurrects call for gas tax holiday, CNN Politics, June 9, 2008
There’s no need for me to explain in detail the favored tax policy by each of the four leading candidates for the President of the United States for two reasons. First, Jeanne Sahadi wrote an excellent tax policy summary for Hillary Clinton, Barack Obama, John McCain and Mitt Romney. Secondly, the candidates’ stances now may be indicative of what will happen once they are sworn into office, but there are hurdles built into the system. Additionally, candidates’ positions can change between now and 2009
Here are some things to take away from what they candidates say they want.
* They all want to preserve recent tax cuts for low- to middle-income earners.
* The two Republicans want to preserve recent tax cuts for households earning over $250,000 while the Democrats want to repeal these cuts.
* Romney wants to lower the rate on the lowest tax bracket to 7.5% from 10% and exempt workers over 65 from having to pay Social Security tax.
* Obama wants to eliminate income tax for seniors earning less than $50,000 and add a $500 to $1,000 credit to all households with working family members (phased out for households with income between $150,000 and $200,000).
* The two Democrats want to expand the earned income tax credit and the saver’s credit.
There are more differences in the article.
The big questions are whether these positions will change as campaigns get tighter and we approach the general election, whether opinions will change once the new President is sworn in, and whether they can get the changes pushed through Congress.
According to the polls, the economy seems to be a hot issue among primary voters, and the candidates’ positions on income tax are related to this priority. Will the economy still be in the front of voters’ minds when the general election rolls around?
I started taking a look at the proposals for revision of the income tax code being tossed around by the latest presidential candidates yesterday. The Democrats are in favor of continuing the Bush administration’s tax cuts, but only for certain individuals. They also support a number of tax cuts that I’ll write about in the future.
Meanwhile, here are the Republicans’ thoughts on income tax.
Rudolph Giuliani wants to make the Bush tax cuts permanent and lower tax rates for corporations. He may consider lowering the marginal tax rates for individuals as well.
Mitt Romney, like Rudy, would write the existing tax cuts for individuals in stone and lower corporate taxes. He would like to drop the taxes on interest, dividends and capital gains for taxpayers with an income under $200,000.
John McCain would like to make the Bush tax cuts permanent and further simplify the tax code. McCain is considering removal of the Alternative Minimum Tax, which was originally designed to keep higher income individuals from avoiding a significant portion of what would otherwise be their tax bill. Thanks to inflation, more and more middle class individuals are caught paying the Alternative Minimum.
Fred Thompson would also like to keep the Bush tax cuts on the books and remove the Alternative Minimum Tax. He wants to lower corporate taxes and eliminate the estate tax. Thompson has also suggested giving tax payers a choice between typical tax rates and a somewhat “flat tax.”
Mike Huckabee wants to do away with the income tax and replace the system with a higher sales tax of 30%. Theoretically, the government would send checks to all taxpayers each month to reimburse them for a portion of these taxes to ensure that those who must spend close to their entire income aren’t unfairly burdened.
Your income taxes: What the candidates want [CNN Money]
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