The new Obama economic plans
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.
Posted by Tyler Cowen on October 14, 2008 at 01:39 PM in Economics | Permalink
Comments
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.
Posted by: charlie at Oct 14, 2008 2:10:07 PM
— 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;
Sounds like a tax break for corporate fat cats to me.
Posted by: mobile at Oct 14, 2008 2:18:37 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?
Posted by: 8 at Oct 14, 2008 2:20:21 PM
I think #1 has creates some weird incentives; of course, the devil is in the details. If you could hire someone to a $25k/yr job and that person reasonably has carrying costs (taxes, benefits, etc.) of another $10k/yr, then the $3k tax credit is nearly a 10% savings. Factor in that such a person is reasonably due a $500 raise in year two (2%) and suddenly laying off that person and re-hiring a raise-less newbie in his place is a $3,500 cost savings on a $35,500 total annual cost.
If that's how the tax credit would work, I see a lot of low-level turnover.
Posted by: LaND at Oct 14, 2008 2:33:25 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.
Posted by: K T Cat at Oct 14, 2008 2:34:10 PM
...
marginalrevolution.com |
