McCain’s gaffe

The market on gaffes is no longer owned by just Sarah Palin and Joe Biden.

The pressure of daily campaigning is really taking its toll…

McCain’s Plan

Yesterday Senator Barack Obama unveiled his proposal to alleviate the pain put forth on American taxpayers as a result of the current economic crisis.

24 hours later, his opponent in the 2008 presidential election made public a proposal of his own to address the country’s financial downfall.

Senator John McCain’s $52.5 billion plan includes:

• Elimination of tax on unemployment benefits (similar as Obama)
• Reduction of capital gains tax by half to 7.5%
• Guarantee 100% of all savings for six months (surpassing the current FDIC cap of $250,000)
• Reduction of tax rate on IRA and 401(k) plans to 10% on the first $50,000 withdrawn

Just as we did with Obama’s plan, let’s analyze each point briefly of the McCain proposal.

Unemployment Insurance

Just as we questioned with Obama’s plan, solutions have to be given as to how the loss of revenue from taxing unemployment benefits will be made up in the federal budget. Fortunately, McCain (even as a moderate conservative) is not the prototypical “tax-and-spend” liberal (like Obama).  Nevertheless, until the public is told how such a plan would be paid for – it means little to nothing at this time – whether it comes from the mouth of a Democrat or a Republican.

Capital gains

I am very much a proponent of a reduction of the capital gains tax rate.  By reducing this rate, investors are given additional encouragement to place money in the stock market – seeing as how the returns would essentially be higher with less money going into Uncle Sam’s pocket.  By boosting investor confidence on Wall Street through making stock purchases the most profitable investment avenue in terms of tax rates, this can help to inflate the Dow and bring the economy back from the dead.  Nevertheless, how room will be made in the budget to compensate for the loss of 50% of current capital gains tax revenue is a question that begs to be answered.

Guarantee of savings

In theory, this plan makes sense.  By guarnateeing 100% of savings in banks for the next six months, the government would be giving the public a sign that despite the fact that banks are needing to be bailed out – their money is safe and cannot be lost.  But in practice, this notion seems to accomplish very little.  Currently, most taxpayers have all of their money in various investment vehicles, including banks.  The only caveat being many taxpayers have their savings dispersed amongst a wide array of banks, with each institution housing the FDIC maximum insured amount.  By insituting this plan, it only gives the public confidence to consolidate all of their money into a single bank – but only for the next six months.  This proposal does very little to actually benefit taxpayers – and rather only places a notion in the public’s mind that their money is safe and guaranteed.

Retirement account tax rates

This plan would benefit seniors who are of age to safely withdraw money from their retirement accounts.  What about the rest of the country that has suffered greatly at the hands of the subprime mortgage crisis and its after effects?  Personally, I feel that Obama’s plan to allow taxpayers to dip into their retirement accounts, penalty free, is a better vehicle to help a broader swath of the public that have retirement accounts.  Why limit the benefit to seniors?  Why not help everyone?

Despite the various criticisms directed towards Obama and McCain for their new tax plans, we should all be happy that the two presidential candidates have finally decided to set aside their partisan bickering in time to put forth opinions on how to address the economic meltdown.

Perhaps tomorrow night’s debate will even include a discussion of these new proposed plans, and more importantly how they will be paid for.  Where will the $52.5 billion to support McCain’s plan come from?  In what other areas will spending be cut to make room for this plan or Obama’s plan?

Are you listening Bob Schieffer?

Obama the Socialist?

Many conservatives and moderates (such as myself) greatly fear Senator Barack Obama’s tax policies – and most especially when he utters things like this:

Are you serious?  “spread the wealth around”

When did that become a tenet of capitalism?  Sounds like Obama is in favor of creating a egalitarian and classless society .

Hmm….

One step closer to Socialism

“Government owning a take in any private U.S. company is objectionable to most Americans – me included.  Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”
-Hank Paulson

That’s a slippery slope my friends.  When we allow the government to make the decision on when it is right to alter the fundamental economic principles on which our great nation was founded, we move one step closer to a Socialist (and possibly a Communist) society.

So what’s the fuss?

Well, the government put into play a plan that will allow for $250 billion in taxpayer money to be directly injected into nine of the nation’s largest banks.  For this investment, the government will receive preferred shares of stock (I think we can all agree that no one wants the government to have voting rights in private companies) and the ability to legislate executive pay (i.e. no more golden parachutes).

Thus in essence the government has ownership in the country’s largest financial institutions.  A nationalization of the banking industry.  A scary proposition to say the least.

Furthermore the plan includes money to buy troubled assets from banks, insure deposits into non-interest bearing bank accounts (used by businesses to house payroll cash), and back senior unsecured debt from banks.  This combination of moves has been put in place to put liquidity within these financial institutions and to invoke investor confidence to park their money with banks so that the credit crunch can loosen at a quicker pace.

Might this plan work?

Sure.

But we are living in very tumultuous times.  By moving the line of demarcation between capitalism and socialism, we set new precedent.  We can only hope that the line can be moved back in the future – should this plan work successfully.