1) For the year's 2009-2010, he wants to reduce the capital gains tax to 7.5% from 15%.
This is similar to what Obama proposed except that Obama's capital gains tax cut was targeted to small business start ups only. Targeting the capital gains tax cut is inefficient in my opinion, and so I am much more in favor of an across the board capital gains tax cut like McCain's. The problem here that I see is not with this particular tax cut on its own. Rather, McCain has proposed a $250 billion mortgage bailout. Now, he will reduce the capital gains taxes among a series of proposed tax cuts. Yet, it is entirely unclear how he plans on paying for this. Our country is already taking on massive new debt, and any more budget deficits will put us in perilous danger of signficant inflationary pressure. Adding more debt will likely cause our economy to move into an inflationary period making these tax cuts whole worthless since everything will cost more.
2) Providing tax relief for the unemployed.
I am almost always a fan of tax cuts, however a tax cut for the unemployed only motivates people to be unemployed just a little bit longer. This is a counter productive measure at a time when we need everyone trying as hard as possible to get work.
3) Lowering taxes for seniors tapping into their 401k.
Here is a tax cut I can get behind. This would stimulate access of 401k savings by seniors which is a good way to stimulate the economy. This portion of the plan I wholeheartedly get behind.
4)Suspend tax rules that force seniors to sell
I have to be honest and I am not familiar with this rule. If there is a rule that forces people to sell prior to a certain age, that rule should be eliminated not suspended.
Here is how the McCain campaign explains the current rule.
Under current law, Americans with tax-preferred IRA and 401(k) accounts must begin to sell off their equities when they reach age 70.5 - unless they continue to work, in which case they must sell when they retire. Forcing seniors to sell at this time guarantees less to live on during retirement and could affect over four million seniors. John McCain believes this should be immediately waived.
If this is accurate, this rule should simply be elminated. It makes no sense to ever force someone to sell at anytime prior to their needing the funds. We should do everything to encourage long term investing and forced selling to satisfy some random age requirement is an unnecessary intrusion into the stock market.
5) Extend capital losses
John McCain Will Not Penalize Those Forced To Sell Off In Today's Tough Markets. John McCain believes that we should increase the amount of capital losses which can be used in tax years 2008 and 2009 to offset ordinary income from $3,000 to $15,000.
That will stimulate selling and it will relieve some tax burden for many that will suffer heavy losses. Both of those actions are expansionary however they are also no different than extra spending. There is an awful lot of things here that can be construed here as the equivalent of new spending and here is why this is a problem...
6) the mortgage bailout
Tax cuts, tax credits, and tax incentives would all be policies I would support, if they weren't combined with a massive $250 billion mortgage bailout. Points one through five are sensible if they were made on their own. Yet, McCain also wants to socialize bad mortgages, and have the federal government give these bad borrowers loans the marketplace would never dare to give them. That is a massive spending program. It creates horrible moral hazards, not to mention that those borrowers that have kept up with their mortgages will be none too pleased to see irresponsible borrowers get better deals than them.
The problem with McCain's stimulus plan is that a series of tax cuts are combined with a massive new spending program. McCain was mostly against the Bush tax cuts because they weren't combined with new spending cuts. Now, he is doing the exact same thing. He has called for freezing non essential spending, and that will likely have to be done. Yet, that is a rather small spending cut when it is put in the context of a $250 billion mortgage bailout. This $250 billion mortgage bailout will be combined with a $700 billion Wall Street bailout, which will be combined with his tax cuts, incentives, and credits. That's a massive amount of new spending and it will mean a massive growth in our deficit. That will put enormous inflationary pressure at a time that the economy is also weakening. That is a recipe for the disaster known as stagflation.
For analysis of Barack Obama's economic stimulus proposal please go here.
No comments:
Post a Comment