Personal Finance 

Second Stimulus Package

Money Money MoneyBack in June, Democrat Presidential nominee Barack Obama suggested that a second stimulus check was necessary. I wrote about it because this was hot on the heels of the first stimulus check and it appeared as though Obama was catering to the masses. In reality, he was running point on a proposal House Democrats were pushing because so many of their proposals were left out of the first stimulus package.

With the credit freeze only now thawing, with both consumer borrowing and spending down, and with the prospects of a weak retail holiday season and rising unemployment, a second stimulus package designed to give our economy a shot in the arm looks pretty appealing now. Even Fed Chairman Ben Bernanke, in testimony given before the House Budget Committee, endorsed the idea of a stimulus package. More importantly, the White House said it would consider additional spending measures; it’s not an all-out endorsement of a second package but it’s better than flat out rejection.

Before anyone gets all giddy, most experts are saying nothing would happen until after the November 4th election. As it stands, most reports are saying that most of the proposals being pushed for the second stimulus package involved measures that were dropped from the first stimulus package. Those proposals included infrastructure improvements and extension of unemployment benefits & food stamps, all told costing about $150 billion or more.

Specifically, Speaker Pelosi wants to bring back a $61 billion House-passed bill:

  • $37 billion in public works spending (infrastructure)
  • $6 billion for jobless benefits (unemployment)
  • $15 billion to help states pay for Medicaid bills
  • $3 billion in food stamp assistance
  • A stimulus check (tax rebate) of some kind, though no details

I am not a fan of the “stimulus check” concept (is it really spending if we are just borrowing from the future?) and I don’t see how all the other spending is going to stimulate the economy (it’s said that the public works spending could be implemented very quickly, thus producing jobs… but it’s public works, that just sounds like it would take a long time). Jobless benefits and food stamp assistance will lessen the pain but they don’t stimulate the economy. Finally, in most states you already get twenty-six weeks of unemployment, that’s six months, isn’t that fair?

I guess we’ll have to see what gets proposed.

(Photo: Tracy O)


McCain & Obama Propose IRA & 401(k) Rule Changes

With the recent cratering of the stock market, both Presidential nominees have proposed changes to IRA and 401(k)s that would allow for both early withdrawals, up to certain limits, and suspension of the required minimum distribution rules. Jeremy at GenXFinance hated the idea but I think offering the option, especially since we are headed towards certain stagflation (inflation for the trailing 12 months before August 2008 was a staggering 5.9% and unemployment was rising). People are going to be strapped. Offering the option of the lesser of two evils is better than forcing people to take drastic measures.

Here are the proposals:

McCain: “Temporarily suspend mandatory annual withdrawals. Current rules require investors to start selling stocks at age 70½. Allow savers who are younger than 59½ to withdraw up to $50,000 at the lowest tax rate of 10 percent in 2008 and 2009.”

Obama: “Temporarily suspend mandatory annual withdrawals from Individual Retirement Accounts and 401(k)s. Current rules require investors to start selling stocks at age 70½. Exempt withdrawals made up to the required minimum amount from taxation. Allow savers to withdraw 15 percent, up to a maximum of $10,000, without paying a penalty as the law currently requires for withdrawals before age 59½. These withdrawals are subject to normal taxes.”

(You can read all of their economic & tax proposals at the New York Times)

I think the suspension of required minimum distributions is crucial and I’m glad the candidates both agree on that. It’ll be the biggest help to those nearing retirement because they won’t be forced to liquidate those stocks that have lost value.

As for the second piece, of the two, I prefer Obama’s proposal because it offers 15%/$10,000 (rather than $50,000) and it is subject to normal taxes as opposed to 10%. McCain’s proposal of dropping the tax rate on withdrawals to 10% is too attractive. All of my 401(k) contributions were done in the 25% tax bracket, I’d have a huge incentive to withdraw my money because I’d immediately see gains because I would only pay 10%, not 25%. (should either proposal ever become law, I wouldn’t withdraw money unless I absolutely needed it though)

Don’t get me wrong, I still think withdrawing funds from your retirement account is a huge mistake. But people will be in trouble and they will either turn towards credit cards and dangerous loans, or they will withdraw the money anyway and simply be left with less of it. It’s truly the lesser of two evils.


NBC Video: Analysis of Obama & McCain’s Tax Plans

Earlier this year, I wrote a post outlining the projected impact of both the Obama and McCain tax plans, as analyzed by The Tax Policy Center. NBC recently produced a two and a half minute piece about the two.

A huge point that the piece makes is that we don’t know how the recent bailouts will affect tax plans going forward. Both plans were introduced in a world where the government didn’t own Freddie Mac, Fannie Mae, or an 80% piece of AIG (and not in discussions for a $700B bailout package!). I personally think that the tax cuts proposed by both sides will be impossible and you’ll have a case of George H.W. Bush’s “Read My Lips, No New Taxes” flip.


Apprehensive About Presidential Tax Proposals

Money Money MoneyAnyone can propose anything.

As the Presidential race heats up, you’re hearing more and more about the tax proposals of both candidates. There’s talk about working class relief, of taxing the rich, of helping the poor and underinsured. There are a lot of campaign promises and proposals designed to get you to vote for one candidate or another. The problem is that the President is only one of three branches of the United States Government. It has no power to legislate and before any of these promises can become a reality… they need to work with the branch that can pass laws, our fine bi-cameral Congress.

(Click to continue reading…)

 Personal Finance 

Roundup: McCain vs. Obama, Taxes & Other Good Stuff(tm)

If you want to compare the economic policies and plans of Presidential hopefuls John McCain and Barack Obama, CNN Money has a good comparison between the two on a variety of issues from Social Security to Personal Taxes.

Jeremy at Generation X Finance has a very good explanation of why the GAO report of 2/3rds of companies paying zero tax is political hogwash. Besides Jeremy’s good points, famous United States Court of Appeals for the Second Circuit judge Learned Hand once said – “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

SVB tackles the question of saving for college, a question I’m going to put off for a little while.

Nickel’s favorite cashback credit card is the Blue Cash from American Express, a card I don’t have. It seems to have a lot of great features, like a comparison of your cashback performance, and good cashback categories as well.

The Consumerist confirms once again why I love Southwest in publishing it’s top 3 most and least “fee crazy” airlines. Southwest was they’re #1 least fee crazy airline.

Flexo wrote about a study that says sleep makes you smarter.

Have a great long weekend!


Obama’s Emergency Economic Plan Released: Second Stimulus Check & Growth Funds

Barack Obama at St. Paul 2008In early June, Democratic Presidential hopeful Barack Obama’s mentioned a need for another stimulus check. Then, in late July, there were rumblings in Congress that Democrats were looking to put together another stimulus package that may or may not include a check to families. There was a move by Democrats to try to pass the aspects of the first stimulus package, which included a check, that were struck down in the name of expediency.

Senator Obama released this six-page policy paper that outlines a two-part stimulus package.

Part 1: Emergency Energy Rebate Checks: The first part would include an “emergency energy rebate.” Individuals would receive $500 and married couples would receive $1000. The checks would be paid for over five years by a windfall tax on oil company profits. The six-page document explains the nature of the checks but doesn’t illustrate how the windfall profits might be taxed (granted, given the political nature of the document, it might be out of scope).

Part 2: $25B State Growth Fund & $25B Jobs and Growth Fund. The second part has itself two parts. The State Growth Fund would help prevent state and local cuts in services like education and housing assistance as well as alleviate the need to increase taxes, tolls, and fees. Many states are feeling the pinch as housing prices fall, foreclosures rise, and real estate tax revenue falling. The Jobs and Growth Fund is really an infrastructure bill that would support maintenance of highways, roads, and bridges; as well as fast-track school repair projects. There is no mention of how this would be funded.

My Thoughts: I didn’t like the stimulus checks but having listened to their use in the 70s in Greenspan’s anecdotal Age of Turbulence, I’m not wholly against them as a mechanism for thwarting an economic slowdown. However, it’s becoming increasingly evident that the checks are as much about politics as they are about prevent a slowdown. While I would imagine the economic policy advisors on Obama’s staff are well versed in macr- and microeconomics, I wonder how much of it is influenced by a desire to win in November.

That being said, people are getting pinched. Not everyone is getting pinched, but a lot of people are and additional funds would help some remain solvent. My concern is that with a deficit nearing half a trillion dollars, we’re sacrificing our future prosperity for relief today. This is exactly the same thinking that gets many people into deep credit card debt. “Just a little more relief…”

Finally, what are the chances this actually happens? Democrats had difficulty extending unemployment benefits and those go only to those who have already lost their jobs. You can argue that some people getting the first stimulus checks didn’t need them, but unemployment benefits only go to those who are unemployed! It’s difficult to say if this plan would even fly, but it makes for an interesting discussion. So, what do you think? 🙂

(Photo: chadwho1ders)

 Personal Finance 

Obama vs. McCain Tax Plans: Obama Saves You More

Rich people, watch out.

The Tax Policy Center broke down the tax policy proposals of your options this November and if you make over $603,000 a year, watch out!

If Barack Obama wins and his plans go through as vaguely outlined, expect your tax bill to go up $115,974. If you make over $2.9M, expect to pay an extra $701,885. Now, if John McCain wins and you make more than $603,000, breathe a sign of relief because you can buy yourself a brand new 2008 Porsche Cayenne with the estimated $45,361 you’ll save. If you make more than $2.9M, buy yourself a new house somewhere with the $269,364 you’d save thanks to McCain.

Of course I jest, because rich people don’t read blogs. They get their people to read blogs and then tell them about it as they are being served tea and crumpets (mmmm crumpets). For rest of us, the 89% that benefit more from Obama’s proposal, our wallets tell us to vote for Obama because his tax policy would result in a greater benefits.

Income McCain
Avg. Tax Bill
Avg. Tax Bill
(Obama – McCain)
$2.9M+ -$269,364 +$701,885 +$971,249
$603k and up -$45,361 +$115,974 +$161,335
$227k – $603k -$7,871 +$12 +$7,883
$161k – $227k -$4,380 -$2,789 +$1,591
$112k – $161k -$2,614 -$2,204 $410
$66k – $112k -$1,009 -$1,290 -$281
$38k – $66k -$319 -$1,042 -$723
$19k – $38k -$113 -$892 -$779
< $19k -$19 -$567 -$548

Incidentally, over the next ten years, the Tax Policy Center estimates that McCain’s proposal would increase the national debt by $4.5 trillion and and Obama’s could add as much as $3.3 trillion.

Of course, this is all in good fun, nice campaign fodder, but until things get signed then nothing is set in stone (how did Pelosi’s first 100 days go… forget the first 100 hours).

Here it is in beautiful chart form (courtesy of ChartJunk):
Chart Comparison comparing McCain and Obama Tax Plans

It does a good job of showing not only the differences in the tax rates but also the number of people affected.

What they’ll do to your tax bill [CNNMoney]
90% of Americans will pay less income tax under Obama than McCain [DailyKos]
The economy: McCain vs. Obama [CNN Money]


Second Economic Stimulus Check: Obama’s Economic Plan

The Make Work Pay tax credit will put $400 ($800 for couples) into your pocket and was passed in the recovery and reinvestment plan.

1/15: The Committee on Appropriations just released the an executive summery of the details of the American Recovery and Reinvestment Plan.

Update 10/21: Bernanke recently endorsed a stimulus package and new life has been given to the prospects of a second stimulus package.

Update: Looks like there’s been more movement on another stimulus check. I wouldn’t hold my breath but it’s a step past campaign fodder.

The ink hasn’t even dried on the first economic stimulus checks mailed out last month and this month and there’s already talk of another stimulus package that would include a second stimulus check, tax breaks for the middle class and seniors, as well as debt relief for students. It’s the first economic salvo fired by Democratic Presidential presumptive nominee Barack Obama this week in a speech at the North Carolina State Fairgrounds [full text of that speech]. In his speech, he briefly discussed long term goals but focused on the short term ones, including a second economic stimulus check.

Second Stimulus Check: $50 Billion

The idea of a second economic stimulus check (who can say no to another stimulus check?)is obviously what most people latched onto (though there were no details in the speech itself) and it was the first thing he mentioned in the short term plan.

That’s why I’ve called for another round of fiscal stimulus, an immediate $50 billion to help those who’ve been hit hardest by this economic downturn – Americans who have lost their jobs, their homes, and are facing rising costs and cutbacks in state and local services like education and health care. We need to expand unemployment benefits and extend them for those who can’t find another job right away – especially since the long-term unemployment rate is nearly twice as high as it was during the last recession. And we must help the millions of homeowners who are facing foreclosure through no fault of their own. [Page 3 of speech]

The other things mentioned in that piece is a 13-week (or more) extension to unemployment benefits, a $10 billion Foreclosure Prevention Fund (which would include a credit of 10% of their mortgage interest payment every year), as well as changes to the mortgage industry to include a Home Score system that helps consumers compare mortgage offers and assess payback ability.

Middle Class & Senior Tax Relief

Page 5 goes into, after railing on McCain, how he’ll slash of corporate tax breaks, close tax loopholes, and begin windfall taxing oil companies to help pay for middle class tax cuts. $1,000 of relief for approximately 95% of workers and families, paid for by the windfall profits of Exxon Mobil. His plan also called for the elimination of income taxes for retirees that earn less than $50,000 a year and raising the Social Security tax cap, without changing the retirement age or privatizing Social Security.

There are several more subjects in the speech, such as a Credit Card Bill of Rights and revamping bankruptcy laws, but we’ll have to wait until next week for details on some of the more long term economic plans. Stay tuned…

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