The faltering US economy has become the central focus of the US presidential campaign in the final days before today's election. Both Republican John McCain and Democrat Barack Obama have offered short term stimulus proposals and longer term packages to jump start the economy and provide for longer term growth.
The next US President, who will take office on January 20, 2009, will be operating in the context of a record budget deficit of at least €388 billion. Some analysts say it could reach as much as €776 billion next year.
Republican John McCain has proposed a €41 billion short-term economic stimulus plan that would:
• Use €233 billion of the €543 billion financial rescue package recently enacted to buy troubled mortgages and replace them with manageable fixed-rate mortgages.
• Reduce taxes on the first €39,000 of withdrawals from IRA and 401(k) retirement accounts to 10 per cent for the next two years. Currently, withdrawals at retirement are taxed at regular income tax rates that range from 10 per cent to 35 per cent.
• Suspend rules that require retirees to begin withdrawals from retirement accounts six months after they reach the age of 70. The delay would allow retirees to ride out the current market crisis and stock market decline.
• Increase the amount of capital losses from the sale of stocks and other assets that can be written off against ordinary income to €12,000 from €2,000.
• Reduce the top tax rate on long term capital gains, currently at 15 per cent, to 7.5 per cent for two years.
• Exempt unemployment benefits from taxes for two years.
• In the longer term, Mr McCain has proposed extending President George W. Bush's tax cuts, which expire at the end of 2010 and cutting the top corporate tax rate to 25 per cent from 35 per cent.
• Mr McCain said he would cut government spending and promote free trade agreements.
Barack Obama has proposed an economic stimulus plan that some experts estimate could cost as much as €148 billion. Mr Obama said he would:
• Enact a windfall profits tax on oil companies to give taxpayers an energy rebate.
• Give businesses a €2,000 refundable tax credit for each new full-time employee hired in the US over the next two years.
• Allow small business to immediately write off up to €194,000 in spending for new equipment and property through the end of next year. The stimulus package enacted earlier this year provided for the €194,000 investment expensing limit only through the end of this year.
• Eliminate capital gains taxes on investments in small businesses.
• Make €19.3 billion immediately available for the construction and repair of roads, bridges, schools and other infrastructure.
• Provide €19.3 billion to states to help them cope with the economic downturn without having to raise property taxes or cut vital services.
• Make €39 billion in loan guarantees available and keep other options open to help US automobile manufacturers retool and develop a new generation of fuel efficient cars. Congress has made €19.3 billion available.
• Implement a 90-day foreclosure moratorium for homeowners making good faith efforts to pay their debt.
• Extend unemployment insurance for long-term jobless workers who have exhausted their benefits. Temporarily suspend taxes on those benefits.
• Temporarily allow penalty-free withdrawals of 15 per cent from tax-preferred retirement accounts up to $10,000.
• Suspend rules requiring retirees to begin withdrawing from retirement accounts six months after they reach the age of 70.
• Increase home heating cost aid.
• Instruct the secretaries of the Treasury and Housing and Urban Development to use their existing authority to more aggressively modify the terms of mortgages.
• Reform the bankruptcy code to assist homeowners and remove legal impediments to encouraging more mortgage restructuring.
• In the longer term, Mr Obama would roll back some of Bush's tax cuts for the wealthy. He proposed a permanent tax cut of €388 for most individual workers and €776 for families. He also would eliminate taxes for seniors making up to €39,000.
• To help jump-start the economy, the tax cuts would be expedited through refunds based on last year's tax returns. He would also provide a 10 per cent refundable tax credit for mortgage interest to taxpayers who do not itemise their returns.
• On trade, Mr Obama has promised to review the North American Free Trade Agreement and use trade agreements to advance good labour and environmental standards around the world. He has also promised to end tax breaks that encourage companies to shift US jobs overseas.