Republican John McCain on Tuesday unveiled $52.5 billion worth of proposals targeting seniors, workers and the unemployed in a bid to get a handle on an economy that's hurting him in the polls.
Speaking in Blue Bell, Pa., McCain outlined a plan that would allow people 59 and older who withdraw money from Individual Retirement Accounts or 401(k) retirement plans in 2008 and 2009 to pay an income tax rate of only 10 percent – instead of the usually higher rates – on the first $50,000 withdrawn each year. There would be no penalty for such withdrawals.
McCain's plan also calls for halving the capital gains tax on stocks purchased and held for more than a year from 15 percent to 7.5 percent for two years, increasing the tax write-off for stock losses from $3,000 to $15,000 for tax years 2008 and 2009, and suspending taxes on unemployment insurance benefits for those two years.
“These are all targeted at people who have been hurt by the recent financial crisis: seniors, savers, workers, people who are trying to get to college,” said Douglas Holtz-Eakin, McCain's chief economic adviser.
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The Arizona senator's plan added to his previous proposals, including having the Treasury Department buy troubled mortgages; giving qualified homeowners government-guaranteed, low-interest mortgages; and suspending rules that require investors to begin withdrawing from their IRAs and 401(k)s when they reach age 701/2.
“With so much on the line, the moment requires that government act, and as president I intend to act,” McCain said.
Democrat Barack Obama's campaign quickly dismissed McCain's plan as a risky venture that provides little tax relief to millions of Americans, particularly senior citizens.
McCain's plan came a day after Obama proposed $60 billion worth of ideas to revive the ailing economy, including a tax credit to spur companies to hire more workers and a new way for consumers to cash out up to 15 percent of their IRAs or 401(k)s without early withdrawal penalties.
Obama's new proposals, combined with his earlier economic-stimulus plan from the summer, would cost about $175 billion over two years, his economic advisers said.
McCain charged that the Illinois senator's plan would harm the economy further by overly encouraging early withdrawal from retirement accounts.
“This is an invitation to capital flight, and therefore to continued instability in the market at a moment when exactly the opposite is needed,” McCain said.
Economic experts say both plans would add to the federal budget deficit. Rudy Penner, an Urban Institute analyst and former director of the Congressional Budget Office, said he didn't embrace either plan for that reason.
However, Penner said he liked one McCain proposal – one that Obama, too, has since adopted – to waive rules that otherwise would force retirees to begin withdrawals from their IRAs and 401(k)s at age 70 1/2 despite the accounts' now-battered value.
He doesn't favor plans that encourage easy withdrawal from 401(k)s for anyone, especially not younger people. He worries most that both candidates' plans would make the already giant federal budget deficits even bigger, swelling the national debt, diverting capital from more productive investment and expanding the nation's dependence on foreign lenders.
“I'd be very careful about increasing the debt,” Penner said.