Obama adds to economic plan
While Wall Street seemed to begin regaining its footing Monday, Barack Obama visited this Rust Belt city to propose new ways to help those struggling on Main Street.
The Democratic presidential nominee called on Congress and the Bush administration to cushion the economy’s blows by approving measures to help businesses create jobs, allow families to dip into retirement savings, delay home foreclosures and stabilize state and local government budgets.
“We need to pass an economic rescue plan for the middle class, and we need to do it not five years from now, not next year -- we need to do it right now,” he told 3,000 supporters in a convention center in this northwest Ohio city.
Skeptics said the plan had popular short-term appeal but would have little impact on the underlying sources of anxiety and instability in the world economy.
“I would hope that both candidates would focus on making sure we have good long-term policies in place, rather than fine-tuning day-to-day concerns,” said Lee Ohanian, a professor of economics at UCLA.
Advisors to GOP presidential nominee John McCain said that Obama’s broader economic policy is flawed because he is proposing to raise federal taxes on upper-income people. McCain says such a tax hike would kill jobs because it would hit some of the economy’s most productive small businesses. Independent analysts have disputed this claim, and Obama has said that his plan would raise taxes on families making more than $250,000 per year.
McCain plans to unveil new economic proposals of his own today in Pennsylvania. Aides did not reveal any details about the scope of those plans.
Obama’s campaign said the new recovery package would cost $60 billion over two years, adding to an economic plan he unveiled in August that would cost $115 billion over two years. The new package included these major elements:
* Companies that added jobs this year and next would receive a $3,000 tax credit per new worker.
* Families would be able to withdraw up to 15% from their IRA or 401(k) retirement accounts, up to $10,000, without penalty.
* Families facing foreclosure would get a 90-day reprieve if they were working with finance firms taking part in the $700-billion rescue package Congress passed last month, and if they were making a good-faith effort to pay their mortgages.
* The Federal Reserve and Treasury would create an agency to lend money to states and cities caught in the credit crunch, such as California.
Some of these proposals, such as the foreclosure moratorium, could be put into effect under existing law. Others, such as allowing people to dip into their retirement accounts, would require legislative action.
Douglas Holtz-Eakin, one of McCain’s top economic advisors, said Obama’s new policies offered “nothing substantive” to help the American economy and called them hypocritical: “At the very time he’s threatening to weaken the American economy with tax increases, explosive spending proposals, expensive health mandates . . . he pretends to offer a ‘rescue package to Americans.’ ”
A McCain supporter, former Rep. Rob Portman (R-Ohio), said he was skeptical of Obama’s proposal to allow families to withdraw up to $10,000 from their retirement accounts without penalty. “I’m not sure what impact that would actually have, except that it would be taking out of retirement-savings assets at a time when those assets are likely to be at a very low value, " Portman said on a conference call arranged by the McCain campaign.
Economists, investment advisors and real estate experts interviewed Monday said they approved of parts of Obama’s plan.
In general, they tended to favor some sort of moratorium on foreclosures, in large part because it has an expiration date and would give lenders and borrowers some breathing room until the panic subsides on Wall Street and at bank teller windows across the country.
“Ordinarily, I’m not in favor of moratoriums of any sort, but these are not ordinary circumstances,” said Kerry Vandell, the director of the Center for Real Estate at UC Irvine.
However, some economists warned that the foreclosure moratorium would just delay the resolution of underlying problems in the housing market.
McCain has proposed a $300-billion plan for the government to buy up troubled mortgages. Obama said that plan would force the Treasury to overpay for distressed mortgages and reward “irresponsible” mortgage lenders.
Asked about Obama’s plans, some experts liked the idea of helping states and local governments find a way to get quick cash to pay their bills. Last week, bond-rating service Standard & Poor’s placed a “credit watch with negative implications” on California’s credit rating out of fear the state won’t be able to find enough investors for a sale this week of $4 billion in short-term securities.
“It’s really a small cost for the Treasury, but it could have really important benefits to keep the local governments running,” said Gary Painter, research director for the Lusk Center for Real Estate at USC.
But the proposal to provide a tax credit for businesses that create jobs drew criticism.
“The issue with tax credits is whether they are encouraging the behavior they are supposed to encourage or whether those actions would have taken place without the credit. And then, the revenue is wasted,” said Robert Willens, an investment advisor in New York.
Willens said he was also concerned that allowing people to pull money out of their 401(k) plans would encourage more spending at a time when many people are spending beyond their means. And, he said, it would remove more money from the stock market when companies already are being punished by record drops in their share prices.
Mehta reported from Toledo, Hook from Washington. Times staff writers William Heisel in Los Angeles and Maeve Reston in Virginia and North Carolina contributed to this report.