comparing obama's and McCain's new economic plans

McCain “announced his new plan”:http://www.nytimes.com/2008/10/15/us/politics/15mccain.html?_r=1&hp&oref=slogin to save the economy (after he said he would and then said he wouldn’t). Obama announced his plan the day before. But let’s start with McCain because he’s always got some doosies:

bq. Mr. McCain said he would propose that people 59 years and older who withdraw money from IRAs or 401(k) retirement plans in 2009 and 2010 pay a tax rate of 10 per cent on the money rather than their higher normal tax rates.

People who are withdrawing their money from their IRAs are generally retired collecting only social security, which would put them in a low tax bracket anyway. So McCain proposes lowering their taxes to 10%. Okay, that’s fine, but it doesn’t help the economy and it helps senior citizens only. McCain’s obviously just after the Florida vote with this idea.

bq. In addition, Mr. McCain proposed a reduction in the tax on long-term capital gains to 7.5 percent from 15 percent in 2009 and 2010

He’s doing this because everyone has suffered such huge investment losses recently. You don’t pay any tax on investment losses so lowering the capital gains tax from 15% to 7.5% doesn’t help. It helps the people who sell investments in 2009 and 2010 with a lower capital gains tax rate. The people whose investments have suffered over the last 5 to 10 years aren’t going to be selling their investments in 2009 and 2010 — they’ll be lucky to have their investments return to their previous values by then. Lowering capital gains taxes is usually done to encourage investment by the wealthy with the promise of bigger gains (i.e, less taxes) later. But a 1 or 2 year investment (that would be sold in 2009-2010) is pretty short-term for a wealthy investor — no wealthy investor is going to start a new business thinking it’ll be sold in just 1-2 years. So it doesn’t really help them either, even if one could argue that the wealthy _need_ help.

bq. An acceleration in the tax write-off for stock losses allowing Americans to deduct $15,000 in losses a year for the tax years 2008 and 2009 (current rules allow deductions for up to $3,000 in losses)

Raising the deduction from $3,000 to $15,000 just encourages people to take their losses now instead of holding investments for the long-term. That’s not wise for investors or for the economy. To be clear, you could always take a deduction on losses, you just had to rollover losses to the next year for any amount over $3,000. McCain just wants to remove the need to roll it over, which helps people in immediate need of help. That’s good.

bq. A suspension on the tax on unemployment insurance benefits in 2008 and 2009.

This makes perfect sense. it helps people who are unemployed, people who actually _need_ help.

bq. Mr. McCain reiterated his plan for the Treasury Department to buy troubled mortgages at face value and give qualified homeowners instead government-guaranteed, low-interest mortgages based on their residences’ reduced value. Mr. McCain at first said lenders would pay the difference, but the next day the McCain campaign said taxpayers would.

This isn’t socialism, this is communism: an expensive house for everyone regardless of whether they can afford it. With this plan, people who took a risk and bought a house they couldn’t afford now get to keep their house for a lower-price and everyone else pays for it. McCain has lost his mind on this one.

What about “Obama’s plan”:http://www.nytimes.com/2008/10/13/us/politics/13obama-text.html?ref=politics? He’s clearly put more thought into it:

bq. I’m proposing to give our businesses a new American jobs tax credit for each new employee they hire here in the United States over the next two years.

Businesses that hire people in the next 2 years get free money from the government. That’s a clear incentive for businesses to invest in their future, and in our ecomomy, by hiring people.

bq. I’ve also proposed eliminating all capital gains taxes on investments in small businesses and start-up companies, and I’ve proposed an additional tax incentive through next year to encourage new small business investment.

Eliminating all capital gains taxes is much better than just halving them, as McCain wants. Better still, if you invest in a small business through 2009, you get a tax break regardless of when the gain comes, not just if it comes in the very near term (by 2010) as McCain proposes. Another simple and clear incentive to invest in the future.

bq. And we should fast track the loan guarantees we passed for our auto industry and provide more as needed so that they can build the energy-efficient cars America needs to end our dependence on foreign oil.

I’m against bailouts for the American auto-industry because they are struggling because the companies suck. I hope with the money comes the requirement that it be used to build more fuel-efficient cars. But given GM’s and Ford’s total inability to foresee higher gas prices and their inability to build more fuel-efficient cars in the last 30 years, I doubt they’re smart enough to do that now. GM and Ford should be allowed to die. Their deaths are part of the capitalism and the free market. However, Obama is a Democrat so he likes to help American workers and it’s hard to argue this doesn’t do that.

bq. We will also save one million jobs by creating a Jobs and Growth Fund that will provide money to states and local communities so that they can move forward with projects to rebuild and repair our roads, our bridges, and our schools. A lot of these projects and these jobs are at risk right now because of budget shortfalls, but this fund will make sure they continue.

Imagine that, government spending money to keep our infrastructure strong. Only a Republican could hate that — they’d prefer to wait for the free market to rebuild our roads and bridges. I can see it now, Coca-Cola and Pepsi are going to team-up to build roads and bridges. Oh, the Republican fantasy.

bq. The second part of my rescue plan is to provide immediate relief to families who are watching their paycheck shrink and their jobs and life savings disappear. I’ve already proposed a middle-class tax cut for 95% of workers and their families, but today I’m calling on Congress to pass a plan so that the IRS will mail out the first round of those tax cuts as soon as possible. We should also extend and expand unemployment benefits to those Americans who have lost their jobs and are having a harder time finding new ones in this weak economy. And we should stop making them pay taxes on those unemployment insurance benefits as well.

Speed up the tax breaks to those who need them, increase unemployment benefits to those who need them and, as McCain copied Obama, to suspend the taxes on unemployment benefits. All of that benefits the people who need help and doesn’t help the people who don’t.

bq. I propose that we allow every family to withdraw up to 15% from their IRA or 401(k) — up to a maximum of $10,000 — without any fine or penalty throughout 2009.

Just like McCain’s plan, but better. Instead of just helping senior citizens, it helps _everyone_.

bq. For those Americans in danger of losing their homes, today I’m also proposing a three-month moratorium on foreclosures.

This is a nice gesture, but it just postpones the inevitable. I guess the 3 months could be just enough for some people to get back on their feet, but not many.

bq. On Friday, I proposed Small Business Rescue Plan that would create an emergency lending fund to lend money directly to small businesses that need cash for their payroll or to buy inventory. It’s what we did after 9/11, and it allowed us to get low-cost loans out to tens of thousands of small businesses.

This is a no-brainer.

bq. We’ll also make it easier for private lenders to make small business loans by expanding the Small Business Administration’s loan guarantee program. By temporarily eliminating fees for borrowers and lenders, we can unlock the credit that small firms need to pay their workers and keep their doors open.

Another no-brainer.

bq. And today, I’m also proposing that we maintain the ability of states and local communities that are struggling to maintain basic services without raising taxes to continue to get the credit they need.

This is somewhat vague, but the intent is obviously a good one.

The scoreboard:

McCain’s got five ideas. Two help those who need help, one helps a small number of people important to his voting block, one is a misguided incentive to invest and one is just plain crazy.

Obama has ten ideas. Four help the economy in the long-term, three help people in need of help today, one creates tons of new jobs right away, one is likely meaningless and one is too vague to understand.

Not surprisingly, the Democrat is smarter on economics. McCain wasn’t joking when “he famously said”:http://www.nytimes.com/2008/01/14/opinion/14krugman.html “The issue of economics is not something I’ve understood as well as I should”.

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