WASHINGTON - Democrat Barack Obama on Monday proposed $60 billion worth of new ideas to stimulate the ailing economy, including a tax credit to prod companies to hire more workers and a new way for consumers to cash out as much as 15 percent of their IRAs or 401(k)s with no early-withdrawal penalties.
Republican John McCain, who is behind in polls, reiterated several of his recent proposals to combat the economic crisis, but rolled out nothing new in speeches in Virginia and North Carolina. He plans a more detailed speech today with some "specific new measures," said Doug Holtz-Eakin, McCain's senior policy adviser.
The economy is by far the most important issue to voters, polls show, but some experts said that Obama's new proposals weren't comprehensive enough. William Shughart, a professor of economics at the University of Mississippi, saw the proposals as minor efforts when "you need a global plan" to help the economy.
Obama's new ideas, combined with his earlier economic-stimulus proposals from the summer, would cost about $175 billion over two years, according to his economic policy director, Jason Furman.
The additional spending probably would drive up the federal budget deficit, estimated at a record $438 billion in fiscal 2008 and likely to be at least that much next year, according to the Congressional Budget Office. Still, because of the economic downturn, "this president is going to need a large stimulus package," argued Alice Rivlin, a Democrat and former Federal Reserve Board vice chairwoman.
Campaigning in Ohio, Obama also proposed giving companies a $3,000 tax credit per new worker for net U.S. jobs created through 2010. He called for a three-month moratorium on home foreclosures. He also asked the Federal Reserve and Treasury to provide short-term emergency loans to struggling states or local governments that can't tap the bond market during the financial crisis.
He said that allowing early withdrawals of up to 15 percent -- capped at $10,000 -- from retirement savings programs through 2009 without tax penalties "will help families get through this crisis without being forced to make painful choices like selling their homes or not sending their children to college."
Current law imposes a 10 percent tax penalty on withdrawals from 401(k) plans before age 59 1/2 and makes the money that's withdrawn subject to income tax. The tax penalty is waived for those who can demonstrate hardships or for first-time homebuyers, said William Roberts, a spokesman for the American Institute of Certified Public Accountants. Obama's proposal would let anyone withdraw up to $10,000 without penalty.
Criticism from McCain camp
McCain's forces were sharply critical.
Holtz-Eakin charged that Obama's $3,000 tax credits for new American workers would "hardly undo the damage" from the employer health-care mandates or some business tax increases that Obama wants.
McCain supporter Rob Portman, a former congressman and budget director for the Bush administration, said that Obama's $10,000 allowance for early withdrawals "seems like it would be the wrong thing to encourage," because it would let people take money out of their retirement accounts at a time when the assets in them are lower because of the crisis.
McCain reiterated his own ideas, pitching his $300 billion plan for the government to buy bad mortgages in exchange for lower-rate government-backed loans, and to take bad debt off banks' books. Obama has criticized that approach as a giveaway to the lending industry.
McCain also has proposed waiving rules that force senior citizens to withdraw from their IRAs or 401(k)s beginning at age 70 1/2 regardless of the market. Obama supports that idea. In addition, McCain has called for freezing government spending on "all but the most important programs."