McCain's new tax cuts: benefit the wealthy: article

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"OCTOBER 15, 2008 from WSJ

McCain Puts New Tax Cuts on the Table

By LAURA MECKLER


Sen. John McCain expanded his response to the financial crisis by proposing new tax cuts for investors, including a sharp, temporary reduction of the capital-gains tax and breaks aimed at older Americans who may need to cash in assets while the market is down.

The plan, estimated by his campaign to cost the government $52.5 billion of revenue over two years,

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The new proposal comes a day after Sen. Obama issued $60 billion of spending and tax-break proposals of his own. Both candidates' plans are in line with their parties' orthodoxy and their own prior initiatives. Sen. McCain is relying largely on traditional Republican tax cuts. Sen. Obama uses a big government stick -- a 90-day moratorium on foreclosures for banks receiving assistance through the federal rescue plan -- and traditional Democratic talk of keeping jobs in the U.S.

Most of Sen. Obama's tax breaks are targeted for a specific purpose, such as an employer tax credit for every domestic hire.

The plans arising in recent days from the campaign trail also show some emerging consensus between the Republican and Democratic contenders. Monday, Sen. Obama proposed eliminating income taxes on unemployment benefits, an idea Sen. McCain embraced Tuesday.

And Sen. Obama said Tuesday that he likes an idea Sen. McCain offered last week to suspend tax rules that force seniors to sell off their retirement accounts in the midst of the crisis.

Last week, Sen. McCain called for the federal government to spend $300 billion to refinance distressed mortgages so homeowners wouldn't owe more than their houses are worth amid the recent slide in home values. Tuesday's package was a recognition that he must continue to put new ideas on the table as he tries to make up ground on Sen. Obama over the next three weeks.

"With so much on the line, the moment requires that government act -- and as president I intend to act, quickly and decisively," Sen. McCain told a rally outside Philadelphia.

The most expensive plank of the McCain plan released Tuesday, at $36 billion, would lower the tax rate on money that seniors withdraw from IRAs and 401(k) retirement plans to the lowest rate -- 10% -- which now only applies to the lowest income tier.

Under current law, income from these retirement funds is taxed at standard personal-tax rates.

This would apply to the first $50,000 withdrawn from such accounts in 2009 and 2010. The McCain camp estimated it would help nearly nine million Americans over age 60. "Retirees have suffered enough and need relief, and the surest relief is to let them keep more of their own savings," Sen. McCain said.

But the Obama campaign questioned how making it easier to withdraw money from the market would stabilize the economy.

If seniors are allowed to pay reduced taxes on their own withdrawals, "how is that not capital flight, specifically for the wealthiest Americans who can move their money around?" asked Obama spokesman Tommy Vietor.

Sen. McCain also proposed cutting in half the tax on long-term capital gains to 7.5% for 2009 and 2010. That would cost the Treasury $10 billion.

"This vital measure will promote buying, raise asset values, help companies and shore up the pension plans for workers and retirees," Sen. McCain said.

Sen. Obama said he doubted that would offer much help. "I don't know anybody, even the smartest investors, who right now are going to be experiencing a lot of capital gains," he told reporters in Oregon, Ohio. "That probably is not going to be particularly useful in solving the financial crisis."

Sen. McCain also proposed raising the amount of capital losses that can be used to offset ordinary income to $15,000 from $3,000.

One potential problem: a short-term cut in the capital-gains tax could encourage investors to sell stocks if they know the rate will revert to its previous level.

Douglas Holtz-Eakin, Sen. McCain's senior policy adviser, said this short-term capital-gains cut would expire around the time President George W. Bush's 2001 and 2003 tax cuts expire, giving Congress an opportunity to consider long-term tax policy. Sen. McCain has also proposed making the Bush tax cuts permanent.