In an effort to seize the initiative in tackling the nation’s financial troubles, John McCain on Tuesday outlined a $52.5-billion package of new tax breaks that he said would stimulate the economy and ease the money problems of many Americans.
Aiming his pitch largely at senior citizens who could be crucial swing voters in states with older populations such as Pennsylvania, McCain said he would lower the tax rate on their withdrawals from retirement accounts to 10% this year and next.
The Republican presidential nominee also proposed cutting the capital gains tax in half for two years, suspending taxes on unemployment benefits for workers making less than $100,000, and ordering the Treasury Department to guarantee 100% of Americans’ savings for six months to calm fears of bank failures.
“If I am elected president, I will help to create jobs for Americans in the most effective way a president can do this -- with tax cuts that are directed specifically to create jobs and to protect your life savings,” he told a cheering crowd of about 1,000 in the gymnasium of a community college here in the Philadelphia suburbs.
The new slate of proposals is an addendum to the Arizona senator’s already expansive tax-cutting plans and his call to use $300 billion of the $700-billion rescue package to buy up bad mortgages and reset them with more favorable terms. It is part of McCain’s effort to right his campaign and regain voters’ trust in his handling of the economy, an area in which more voters favor his opponent, Illinois Sen. Barack Obama.
The Obama campaign immediately criticized the McCain plan, saying it failed to do “anything to help jump-start job growth for America’s middle class.”
Obama unveiled his own $60-billion plan Monday, which included a $3,000 tax credit to companies for each full-time worker they hire, a 90-day moratorium on home foreclosures, and a temporary relaxation of rules so that families can withdraw as much as $10,000 from their retirement savings without penalty.
Several financial analysts were critical of both packages, saying they are short-sighted approaches that may soften the recent financial hardships for some Americans but do little to address the underlying weakness in the economy.
“On the campaign trail they sound good -- like they are addressing real problems -- but they create their own problems,” said Roberton Williams, principal research associate at the nonpartisan Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute.
“The practical effect of both Obama’s and McCain’s proposals to allow people to draw down from their retirement more easily without many tax consequences is that it discourages savings and encourages spending,” said investment advisor Martin Weiss, president of the Florida-based Weiss Research Inc. and editor of MoneyandMarkets.com. “The fundamental problem we have right now is that people haven’t saved enough -- they’ve been spending too much, or they’ve been taking too much risk with their investments. So these kind of actions don’t solve the problem.”
Touting his economic plan in Pennsylvania, McCain argued that lowering the maximum tax rate on long-term capital gains from 15% to 7.5% in 2009 and 2010 would “promote buying, raise asset values, help companies, and shore up the pension plans for workers and retirees.”
That idea drew praise from Pat Toomey, president of the conservative Club for Growth, who said it was “definitely pro-growth.”
But Bart Narter, an analyst at the Boston-based financial consulting firm Celent, said the plan to cut capital gains taxes would benefit the wealthy at a time when boosting everyone else’s spending power would stimulate the economy more.
“The rich have seen, under the eight years of Bush, their tax rates drop,” he said. “Dropping them still more, that’s trickle-down, and doesn’t seem appropriate in this environment.”
Explaining his plan to lower tax rates on 401(k) and individual retirement account withdrawals to 10%, the lowest rate, McCain said that “retirees have suffered enough and need relief.”
“The surest relief is to let them keep more of their own savings,” McCain said in Blue Bell as the crowd applauded and a woman yelled out, “That’s right!”
His campaign estimated that the proposal -- which would apply to the first $50,000 withdrawn in each of the two years -- would give about 9 million people more flexibility with their retirement funds.
But some experts said McCain’s plan might encourage Americans to take money out of the stock market at a time when companies sorely need capital.
Williams said it wasn’t clear that the capital gains proposal “makes any sense at all.”
“It’s not likely to induce new investment today,” he said, “and it is likely to have the adverse effect of pulling money out.”
Times staff writers Michael Finnegan and Seema Mehta contributed to this report.