The new Obama economic plans

by on October 14, 2008 at 1:39 pm in Economics | Permalink

The main new proposals would:

– for the next two years, give businesses a $3,000 income-tax credit for each new full-time employee they hire above the number in their current workforce;

– allow savers with tax-favored Individual Retirement Accounts and 401(k)’s to withdraw 15 percent of those retirement savings, up to a maximum of $10,000, without paying a tax penalty as the law currently requires for withdrawals before age 59 and a half;

– bar financial institutions that take advantage of the Treasury’s rescue plan from foreclosing on the mortgages of any homeowners who are making “good-faith efforts” to make payments;

– direct the Treasury and the Federal Reserve to create a temporary facility for loans to state and local governments, similar to the Fed’s new arrangement to loan corporations money by buying their commercial paper, which are the I.O.U.s that help businesses with daily operating expenses like payrolls.

Here is the article.  I doubt if the substitution effect generated by #1 is large.  I fear the precedent set by #2 and I don’t understand the enforceability of #3.  Savings withdrawals are in effect a form of fiscal policy and I don’t yet see how fiscal policy is supposed to cure us of our current mess, which is rooted in coordination problems.  Let’s hope #4 does not become necessary.  Of course it is before an election and each candidate has to propose doing something in addition to the status quo.  But a lot will happen between now and 1/20; fortunately these proposals won’t be taken very seriously.

Here are McCain’s proposals, I may discuss them soon.

1 charlie October 14, 2008 at 2:10 pm

State and local bailout is very egregious. Large chunks of the country have not been hit with inflated house values. Bailing out state/local governments is a transfer of money from federal tax revenue from areas that have not gone through a real-estate boom (midwest) to those who have (east coast, ca, fl). Why should taxpayers in Cleveland subsidize Boston condo owners? If the Boston and Massachusetts government collapses, that is really not a concern to Ohio taxpayers. If a Mass. bank collapses, the ripple hurts everyone. Obama doesn’t want to say: Drop dead, NYC.

2 8 October 14, 2008 at 2:20 pm

I didn’t pay taxes on my 401k contribution…then I can take it out tax free, put it in CDs, then put it back in my 401k and reduce my taxes again…why not just cut my taxes?

3 K T Cat October 14, 2008 at 2:34 pm

It looks like #4 allows states to forgo making any decisions on budget cuts. His whole plan is biased heavily towards deficit spending. The feds will borrow money to loan it to states so they won’t have to cut spending.

Not good.

4 guy in the veal calf office October 14, 2008 at 2:54 pm

He’s going to win, so we might start seriously considering what an Obama administration will look like. The president proposes, but Congress legislates, so we should look at his history within his party.

Has Obama demonstrated a capacity and interest (1) to generate, fight for and bring home his own policy initiatives and (2) in confronting his own party and voting against their more boneheaded moves? (I recall that he promised to work with the GOP on campaign finance, but immediatly backed down when his leadership called him out; not a promising event.)

If, like Bush, Obama merely rubber stamps legislated domestic policy, then we can ignore his economic policy and ask instead: What would Nancy & Harry do?

5 gabe October 14, 2008 at 3:00 pm

I’m looking to stop mortgage payments. Anyone have the requirments I need to qualify for “good faith effort”…I might retire early this year if neccesary.

6 jorod October 14, 2008 at 3:27 pm

Boy, Obama can change his spots whenever he wants to..Why not just drill for oil?

7 assman October 14, 2008 at 3:38 pm

Isn’t #1 an incentive to reduce productivity. Seems equivalent to Keynes suggestion that if necessary people should be hired to dig and fill holes.

8 JasonL October 14, 2008 at 3:48 pm

Number 2 is wrongheaded if you are a paternalistic government type. People will almost universally shoot themselves in the foot on that one. Even if you are not paternalistic, you’d want to think carefully about this. The tax incentive is designed to offset the demand for a posh retirement welfare program. To some degree, it is finally starting to work.

9 meter October 14, 2008 at 4:55 pm

“Can the American electorate be so silly as to vote to radically reduce their political, economic, religious, and personal freedoms?”

Whoa, boy – someone apparently hasn’t heard about the Republican tenets of the Patriot Act, a *completely new* enthusiasm for torture, the yellow journalism as practiced by the GOP, and a Supreme Court which, if you wingnuts had your way would be dictating to women what they can/cannot do with their bodies.

Yes, we’ve enjoyed “freedom” of the highest order these past 8 years.

We tried your little experiment and it sucked. Big time.

10 JordanT October 14, 2008 at 6:47 pm

Can the American electorate be so silly as to vote to radically reduce their political, economic, religious, and personal freedoms?

Because Bush holding people indefinitely without trial and torturing them isn’t an assault on our most basic freedoms? The expansion of executive power under Bush is the largest threat to American freedoms, and I feel McCain would continue the same policies.

5) reduce the freedom of parents to teach their children about morality through legislation that would begin indoctrinating children in Kindergarten with “sex education†.

Because teaching Kindergartners how to identify when they are being molested by child predators is such a bad thing. Unless of course, you are a child predator. Parents also can pull their children from sex education classes (at least they did when I was in school) or home school their kids. Or send them to private schools more in line with their beliefs.

We tried the Republican experiment for 6-years and we got two wars to the cost of a trillion and counting, and an economic crisis the scope we haven’t seen since the Great Depression. We increased the national debt from $5T to $10+T and counting.

11 Yancey Ward October 14, 2008 at 6:56 pm

I think the reality is going to be much worse. I think unemployment at 9-10% is quite likely by next summer. If that happens, the financial hole of the banks gets much, much deeper. We may well see the deficit run in fiscal year 2010 to be in excess of 1 trillion dollars. If we really do go down the road of subsidizing state and local governments, that deficit may explode to 2 trillion- politically speaking, it will be impossible to subsidize CA and MA without do the same for OH, PA, MI etc.

12 K T Cat October 14, 2008 at 7:03 pm

If we really do go down the road of subsidizing state and local governments, that deficit may explode to 2 trillion- politically speaking, it will be impossible to subsidize CA and MA without do the same for OH, PA, MI etc.

You’d certainly expect him to prop up the swing states and the ones where his senatorial comrades might be in electoral trouble. Those are some pretty big holes to fill with dollar bills.

13 matt wilbert October 14, 2008 at 7:46 pm

Proposal #1 seems perfectly reasonable to me. You don’t get a credit for hiring that isn’t above the current level, so the turnover argument made above seems wrong. However, I doubt that a $3000 credit is a good enough reason to hire another worker in a serious recession, so it probably wouldn’t accomplish much.

#2 is just a elimination of the penalty, not of the tax. It is still a bad idea, because although we might want more countercyclical spending, we actually need people to save more, not less, and this is going the other way.

#3 is a very bad idea. Some method of slowing down foreclosures might be OK, but this isn’t a good way.

#4 is pointless. If you want to maintain state and local spending, which is probably a good idea for the next year or two, you need to give them money, not lend it to them.

I support Obama, but these aren’t particularly good proposals.

14 Adam October 14, 2008 at 8:13 pm

“I fear the precedent set by #2 ”

In Canada, money is contributed to an RRSP pre-tax, and taxed when taken out. It allows people to smooth out their taxes a little bit, and seems reasonably efficient (if you set aside the “Canadian investments” requirements.) Could you say why you think its a bad idea?

15 indiana jim October 14, 2008 at 9:07 pm

meter,

If Obama has his way, botched abortions the leave a live child will allow the murder of the child; and beyond that the taxpayers of the USA will all be made fiscal accomplices to this abomination (or is that Obamanation?).

Now who exactly are YOU calling a “wingnut”? It always amazed me when people think ad hominem trumps evidence.

16 12345 October 14, 2008 at 9:15 pm

Won’t #3 have the result of deterring lenders from making high risk mortgages? If they have to litigate every foreclosure on the facts of whether someone is acting in “good faith” merely to get what was promised to them, won’t they try to avoid that scenario? Doesn’t seem like very Democrat policy; seems like it’d make it harder for people to get a loan buy a home. Not that that’s a problem. I’m just surprised it’s coming from him.

17 Alex October 14, 2008 at 9:34 pm

To those anti-provision number 2, isn’t that still _the_contributor’s_money?? Isn’t it better to let folks access that money than draw on other government handouts?

18 the jazzmonger October 14, 2008 at 10:28 pm

#1 creates a possibility that some new hires might happen here rather than be exported overseas. It also might be just the nudge a small business needs to expand.

#2 helps stop some of the “cash-out” sales by seniors worrying about having enough cash on hand over the next few months. These sales are adding to the price plummet of stocks across the board.

#3 can help forestall some of the “rolling foreclosures” that are making housing values drop in neighborhoods all over the country. It seems like a small, temporary step, but it can help stop the snowball.

#4 is not a bad idea. It would help the confidence factor, much like the creation of FDIC did when bank runs had become the norm.

None of these proposal is, by itself, a major remedy. But each addresses one of the leaks in the boat of confidence. The beauty is that they address different sectors of the economy and apply a soothing hand to the worried brow without creating a significant potential cost.

19 MarkJ October 14, 2008 at 11:16 pm

“If, like Bush, Obama merely rubber stamps legislated domestic policy, then we can ignore his economic policy and ask instead: What would Nancy & Harry do?”

Obama will likely “lead by voting present”: He’ll leave the icky details of his oh-so-smart-and-thoughtful proposals to be bloodily thrashed out by the Girondistes and Jacobins (Mensheviks and Bolsheviks?) within his party. Once this is done, His Eminence will immediately come out from behind his styrofoam Greek columns and claim credit for having provided “leadership” throughout the process. Kinda like that scene in “Gladiator” when Commodus arrives on the battlefield a day late and a dollar short, then tries to hog a piece of Marcus Aurelius’ and Maximus’ glory.

“Obamaship” might work for a while, but I suspect the Blue Dogs are going to tire of His Majesty’s lofty antics very quickly. Hey, this year’s election hasn’t even taken place and the Dogs are already worrying about 2010. If they screw the pooch, especially with a severe recession on the horizon, they’re looking at a potential GOP tidal wave in 2010 no matter how many fake voters ACORN registers.

20 meter October 14, 2008 at 11:29 pm

“meter,

If Obama has his way, botched abortions the leave a live child will allow the murder of the child; and beyond that the taxpayers of the USA will all be made fiscal accomplices to this abomination (or is that Obamanation?).

Now who exactly are YOU calling a “wingnut”? It always amazed me when people think ad hominem trumps evidence.”

Your frothing at the mouth has evidently impacted your ability to form coherent sentences. Botched abortions? What on earth are you raving about? Anyway, nice “evidence” in that there post.

21 indiana jim October 15, 2008 at 12:14 am

meter,

More ad hominem is all I expected from you and you have met expectations.

I’m not going to do your homework for you on Obama’s various statements and votes on
abortion and botched ones. Educate yourself.

The only reason you count typos as incoherence is that you know nothing of the extent to which Obama will take “pro choice”; wanting taxpayers to foot the bill for other people’s housing, medicine, food, and so on is bad enough, but wanting taxpayers to pay be fiscally responsible for other people’s choice to have abortions crosses a completely different line.

22 Anthony October 15, 2008 at 1:47 am

Adam – #2 will reduce overall savings. Money placed into retirement accounts *is* savings, and removing the penalty will encourage some people to remove money from a 401k or IRA to spend it.

It makes very little sense to remove money from a tax-advantaged retirement account to invest in some other vehicle, especially as some of those accounts effectively let you play the market with your retirement money. So removing the penalty will not increase the amount of money saved. (Except in the possible case of withdrawals being used to pay one’s mortgage, but even there, most of the money will not be paying off principal, and will thus not constitute “savings” on a household level.)

23 K T Cat October 15, 2008 at 8:08 am

Indiana Jim,

Both my daughter and I were excellent candidates for abortions. Thankfully, my parents had me and I adopted her. Understandably, we’re not real big on abortion / infanticide over at The Scratching Post.

😉

24 Anonymous October 15, 2008 at 10:38 am

guy in the veal calf office:
//If, like Bush, Obama merely rubber stamps legislated domestic policy, then we can ignore his economic policy and ask instead: What would Nancy & Harry do?//

I whole heartedly agree. Party is what matters. Time and time again we see politicians run on platforms of reform and change (Republicans and Democrats, doesn’t matter which), yet when they get to office we see them fall in line and vote the party.

Party matters much more than the man. So yes, instead of wondering about these “proposals” Obama offers as he runs for office, let’s instead ask what will Nancy and Harry do?

Whew! Pleasant thoughts for the day…

25 indiana jim October 15, 2008 at 11:48 am

K.T.Cat,

Thank you for sharing you thoughts, evidence, and perspective. Maybe if more people think about what Obama wants “pro choice” to morph into (i.e., taxpayer funding of other peoples’ abortions, including “disposal” of live births in case of “errant” abortions that leave live births), maybe then Americans will reflect more thoughtfully on the facts and evidence surrounding Obama (which is in no small way in utter conflict with the soothing rhetoric he emits so eloquently).

26 indiana jim October 15, 2008 at 12:22 pm

Superheater,

The key thing to focus on is the statement “. . . and I feel McCain would continue these policies”.

Anyone who thinks that McCain is for torture hasn’t examined the evidence. Uninformed “feelings” are a poor substitute for a look at the evidence, but there is no doubt that the incentives for voters, given their probability of affecting the outcome, are often to be woefully ignorant (rationally). But this year, the odds of an individual altering the outcome are probably much higher than in the average election for US president, so maybe over the next several weeks people are going to learn enough to choose less ignorantly than usual.

27 jorod October 15, 2008 at 2:26 pm

Why not just cut the corporate tax rate and allow companies to deduct dividends?

Superheater, would you put soldiers on trial? What do you do with enemy combatants with no association with an army? Are they POWS or criminals? either way you would be wrong… so says the MSM.

28 jdcrisp34 October 16, 2008 at 12:48 pm

First off I really don’t think that the $3,000 tax credit for each new hire is going to make that big of a difference seeing as how Obama will be raising taxes on these business’s by around 10 percentage points. Then on the #2, I believe that there is a penalty for withdrawing from your 401k for a reason, and that reason is that it jeopardizes your future retirement. Then on #3, I believe that it would be almost impossible to enforce that because who gets to decide what is a “good faith effort” to make payments? On Obama’s last point I believe that the federal government is in no position to be giving loans right now considering the kind of deficit we are in and I also believe that the states that are receiving the loans would just be encouraged to spend more even though we are in a time were we need to cut spending.

29 Brian Kelly October 25, 2008 at 6:04 am

The 401(k) thing is a joke. First off where do these companies get off ?

This is deferred compensation that the paying company either still has control over OR the trustee companies have used as slush funds.

The second you want to check up on the stability of your contributions a huge stock market drop takes place because very simply they’ve been trading people’s 401(k) assets since they know they do not have to return the funds back to the “investors” for another 20-30 years.

IF Wall Street can find a way to steal money , they will . 401(k) Trustees and Mutual Fund “managers” are all skanky thieves.

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