The following was written prior to the elections of 2008, Obama was elected and so I lost interest in comparing the two strategies, But part of the McCain strategy was passed through congree recently http://taxes.about.com/b/2008/12/15/congress-waives-required-mininimum-distributions-for-2009.htm It looks like someone liked part of his plan.
Lets look at what McCain suggested to help folks out on their retirement and investing accounts during this economic "slump." Today Ill start with McCain's proposals to accelerate the economy and I will address Obama's plan next week.
John McCain's Plan can be found here: http://www.johnmccain.com/Informing/News/PressReleases/6548c935-9534-40c9-b780-5c435ecc5767.htm
For The Retired.
Topic one.
Under McCain's proposal to help out Americans who are retired, McCain has asked the US treasury to eliminate the minimum required withdrawals for retires to withdraw assets (at age 70.5) from there tax-deferred retirement accounts, as well as eliminate the 50% penalty for missing those required distributions. McCain does not specify how long her would have this in place, but I would expect he would look to have this last through 2009.
How this helps retirees:
What is the minimum required withdrawal rule? Its a law that requires tax-deferred account holders, including traditional IRA and institutional deferred compensation retirement plans(401ks, 403b...) to start withdrawing there assets based on a lifetime table. Whenever a tax-deferred account holder reaches the age of 70.5 they must begin these withdrawals, and could face a 50% penalty for missing them. This is a basic description, there are many rules to an MRD, that allow further deferral of retirement assets and there are different lifetime tables that are allowed to be used depending on certain factors.
I'm not sure I like this..... its a bit two faced.
Bottom line... I don't think this would be very helpful to the economy in the short term, this promotes saving rather then spending! And in a time where we need spending to fuel the economy this is questionable.. In my mind this supports the wealthy population, or the retirees that don't rely on their tax deferred savings account to live on. What are the benefits of this? benefits the retirees that have taken additional risk in their retirement portfolios, (hopefully because it was appropriate, meaning they were not relying on the assets) by having exposure to the markets. McCain's proposal gives them more time for recovery, so these retirees don't have to sell when the market is low. In the long term it could prove useful to our economy when these assets change hands (inheritance), but I don't see any short term benefit to the economy, again this is influencing savings and not spending... There may be some retirees out there that were taking additional risks on their portfolios because they got greedy and wanted a little extra growth before they started to rely on it.. Poor planning on there part, if your going to rely on your retirement assets in the short term, then make sure you plan for them to be there, so I don't feel as bad.
My judgement on this: Poor policy, with out all the numbers I couldn't say for sure, but I feel this benefits the wealthy not the economy.
Topic two... McCain proposes is to lower income tax on the retirees that are withdrawing from retirement accounts. McCain does not specify the amount in rate reduction.. but I like this one, this promotes spending and money movement now! Retirees that do rely on these asset types, and did properly allocate there retirement accounts (not heavy allocation in stock), get a little more in the pocket to spend, give away to grand kids and so on! For the wealthy retirees, since they have to take out money anyways with MRD rules...(hoping the first topic does not pass)... this will also put more money in the hands of consumers now, again supporting spending one of the keys to pushing the country out of its current economic slump.
My Judgment on this topic: Good! Lets promote spending, promote withdrawals from retirement account and get money in motion!! And make our retirees feel good about it!
Topic three, for savers McCain is proposing to increase the tax write off on taxable accounts where investors take a loss on the sale of a stock. The proposed increase would be raising the write off from the current $3000 to $15000. As always, with tax cuts and putting money in the hands of the people, I like this. The only people that are going to be selling their stock in this environment are the folks out there who need the money, any other experienced investor that has stock positions, who don't need the money are more then likely going to just hold on to the stock positions and wait for the recovery phase of the market. This helps the needy, and puts money in the peoples hands for spending, living, keeping there homes, and helping the whole economy all together.. The things I don't like is this should only be temporary, 2008-2009, and McCain does not specify a time frame. The reason this should not be permanent is as Ben Franklin says best, "in this world there is nothing certain but death and taxes." Who could not be more right, well balanced taxes keep a civilized, well functioning society. There needs to be balance to our tax system and tax write off should be returned to the $3000 annual limit after 2009.
My Judgement: OK.. Supports spending, needs more clarification.
The last proposal from McCain is to reduce the long term capital gains rate from the current 15% to 7.5%.. essentially cutting this tax in half. I'm not sure about his one, I like it as it supports spending and selling stock, but I feel the 5% or 15% (depending on income rate) is an already low, well balanced rate.. relative of coarse to the standard income rates.. My reasoning here? Well, capital gains rate were introduced to the US tax system with the intention of promoting capital investment and entrepreneurial investing. So how does it work? Well investors looking to put there money someplace are going to look to areas where they get preferential tax treatment. They could invest in a dividend paying, fixed income investment, but dividends are taxed at normal tax rates, which are higher then the lt-capital gains rate. There is the incentive, invest in stock, equities, and support the system. In return when you sell the stock at a gain you get the sweetener! These rates are still incentive enough to invest in stock and take additional risk, and people who do have the cash to invest in stock at this time are going to do so, benefiting the wealth only, because the people who are in need are already tapping their accounts, and already getting a great tax rate on doing so.
OK well that's it on this topic... I know its a bit down to basics but sometimes that's what we need to see the picture.
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