Democrat Barack Obama on Monday proposed $60 billion worth of new ideas to stimulate the economy, including a tax credit to prod companies to hire more workers and a new way for consumers to cash out up to 15percent of their IRAs or 401(k)s with no early-withdrawal penalties.
Republican John McCain, behind in polls, reiterated recent proposals to combat the economic crisis, but rolled out nothing new in appearances in Virginia and North Carolina. He plans a more detailed speech today with “specific new measures,” said Doug Holtz-Eakin, McCain's senior policy adviser.
The economy is the most important issue to voters, polls show, but some experts said Obama's proposals were not comprehensive enough.
Obama's new ideas, along with his earlier economic-stimulus proposals from the summer, would cost about $175 billion over two years, according to his economic policy director, Jason Furman.
The additional spending probably would drive up the federal budget deficit, estimated at a record $438 billion in fiscal 2008 and likely to be at least that much next year, according to the Congressional Budget Office.
Still, because of the downturn, “this president is going to need a large stimulus package,” argued Alice Rivlin, a Democrat and former Federal Reserve Board vice chairman.
Campaigning in Ohio, Obama also proposed giving companies a $3,000 tax credit per new worker for net U.S. jobs created through 2010. He also called for a three-month moratorium on home foreclosures and asked the Fed to provide short-term emergency loans to struggling states or local governments that can't tap the bond market during the financial crisis.
He said allowing early withdrawals of up to 15 percent – capped at $10,000 – from retirement savings programs through 2009 without tax penalties “will help families get through this crisis without being forced to make painful choices like selling their homes or not sending their children to college.”
Current law imposes a 10percent tax penalty on withdrawals from 401(k) plans before age 59 1/2, and makes the money withdrawn subject to income tax. The tax penalty is waived for those who demonstrate hardships or are first-time homebuyers, said William Roberts, a spokesman for the American Institute of Certified Public Accountants. Obama's proposal would let anyone withdraw up to $10,000 without penalty.
The Illinois senator also reiterated calls for an emergency lending fund, fee waivers for small businesses and extended unemployment benefits.
McCain's forces were sharply critical.
Holtz-Eakin charged that Obama's $3,000 tax credits for new American workers would “hardly undo the damage” from the employer health-care mandates or some business tax increases that Obama wants.
McCain supporter Rob Portman, a former congressman and budget director for the Bush administration, said Obama's $10,000 allowance for early withdrawals “seems like it would be the wrong thing to encourage,” since it would let people withdraw money from retirement accounts at a time when the assets are less valuable because of the crisis.
McCain reiterated his own ideas, pitching his $300 billion plan for the government to buy bad mortgages in exchange for lower-rate government-backed loans, and to take bad debt off banks' books. Obama has criticized that as a giveaway to the lending industry.
McCain also proposes waiving rules that force senior citizens to withdraw from IRAs or 401(k)s beginning at age 70 1/2 regardless of the market. Obama supports that idea.
Also, the Arizona senator calls for freezing government spending on “all but the most important programs.” Defense, veterans' care, Social Security and perhaps others would be exempt from his freeze.