TOLEDO, Ohio — Senator Barack Obama proposed new steps on Monday to address the economic crisis, calling for temporary but costly new programs to help employers, automakers, homeowners, the unemployed, and state and local governments.
In an address here, Mr. Obama, the Democratic presidential nominee, proposed giving employers a $3,000 tax credit for each new hire to encourage job creation. He said he would seek to allow Americans of all ages to borrow from retirement savings without a tax penalty; to eliminate income taxes on unemployment benefits; and to double, to $50 billion, the government’s loan guarantees for automakers.
Mr. Obama also called on the Treasury and the Federal Reserve to create a mechanism to lend money to cities and states with fiscal problems, and to expand the government guarantees for financial institutions to encourage a return to more normal lending. He also proposed a 90-day moratorium on most home foreclosures; it would require financial institutions that take government help to agree not to act against homeowners who are trying to make payments, even if not the full amounts.
“We need to give people the breathing room they need to get back on their feet,” Mr. Obama told a crowd of more than 3,000 people at the SeaGate Convention Centre in downtown Toledo.
Mr. Obama’s Republican rival, Senator John McCain, will make new proposals for the economy on Tuesday, advisers said. They did not provide any details.
Late Sunday, after Mr. McCain and his team looked at a variety of policy options over the weekend, a campaign spokesman said Mr. McCain, who has been losing ground to Mr. Obama in the polls, would have no new proposals unless events warranted. Mr. McCain has been emphasizing his plan to help people with financial difficulties get more affordable mortgages, with taxpayers picking up the tab.
In his speech on Monday, Mr. Obama said: “I won’t pretend this will be easy. George Bush has dug a deep hole for us. It’s going to take a while for us to dig our way out. We’re going to have to set priorities as never before.”
The package of new proposals was the most detailed and ambitious offered by Mr. Obama since the financial crisis became acute last month, clouding the economic outlook and transforming the presidential campaign.
This struggling manufacturing city is representative of both the economic crisis and the political battle for industrial-belt swing states that could determine the winner of the election. Mr. Obama is spending three days in northwestern Ohio, just south of the auto-making capital, Detroit, mostly sequestered with advisers to prepare for the third and final presidential debate on Wednesday at Hofstra University in Hempstead, N.Y.
Mr. Obama’s advisers emphasized that many of the new steps he called for could be taken quickly by the Democratic-controlled Congress in a lame-duck session this year, instead of waiting until after the new president is sworn into office in late January. Several steps could be taken by the Treasury and Federal Reserve using their powers under current law, the advisers said.
At the Capitol on Monday, Speaker Nancy Pelosi would not commit to calling Congress back immediately after the elections to consider a stimulus plan, given the potential that Mr. Bush would veto it. House Democratic leaders met with economists and afterward said they would develop a package for increased spending on public works, health care subsidies for states, extended unemployment pay and food stamp assistance.
Obama advisers put the cost of Mr. Obama’s full economic stimulus plan at $175 billion, including $60 billion for the steps announced Monday.
Of the earlier $115 billion, $50 billion would be used to help states and to speed construction of roads and other infrastructure projects that create jobs. About $65 billion of it would be the cost of a second round of rebates to taxpayers this year.
Mr. Obama had initially proposed to offset the rebates’ expense with a new windfall-profits tax on oil companies, but the campaign indicated Monday that he would scrap that plan assuming that oil prices do not rise above about $80 a barrel. The shift was just one sign of how the economic crisis has shoved concerns about budget deficits to the sidelines.
Despite criticism from the McCain camp that increasing taxes would further endanger the economy, Mr. Obama has “no plans to change” his longstanding proposal to repeal the Bush tax cuts next year for households with an annual income of more than $250,000, said Jason Furman, Mr. Obama’s economic adviser. Under Mr. Obama’s plan, most individuals and families would get a tax cut, and in terms of total dollars, he would cut taxes on lower- and middle-income people more than he would raise them on upper-income people.
McCain advisers on Monday reiterated their argument that the higher taxes, together with Mr. Obama’s plan for expanded health care, would hit small businesses with costs they could ill afford. Many small businesses pay taxes as individuals. But the Obama campaign and independent fact-checking groups argue that relatively few would be affected by the tax increase on upper-income levels.The recent surge of government spending to bail out financial institutions and other corporations are likely to drive projections for the federal deficit this year and beyond far above the $438 billion shortfall recorded for the fiscal year that ended Sept. 30.
Yet the McCain campaign insisted Monday that Mr. McCain would balance the budget by 2013, which would be the end of his first term. Nonpartisan analysts consider that unlikely if not impossible. Mr. Obama is promising to reduce annual deficits from the current level.
The most costly of Mr. Obama’s new proposals is the one giving businesses a $3,000 income tax credit for each new full-time employee they hire above their current work force. The proposal, which would be effective for the next two years and is based on a concept that has been used in past downturns, would account for about $40 billion of the new package’s $60 billion price tag.
About $10 billion of the $60 billion would go to eliminating income taxes on unemployment benefits and extending aid to the long-term unemployed by 13 weeks, on top of the existing 26 weeks.
Mr. Obama’s proposal from last week to allow struggling small businesses to apply for loans from the Small Business Administration’s disaster funds would cost more than $5 billion. The expense of covering additional loan guarantees for the auto industry would mean more than $4 billion more.
Economists and nonpartisan analysts generally oppose making it easier for Americans to tap into retirement savings, considering that the United States has a net negative savings rate that is the lowest among the world’s industrialized nations. But Obama advisers counter that many Americans need that money to get by and should not be penalized when major financial institutions are getting bailouts.
For savers, the downside to withdrawing money now is that they would get less value given the slide in the stock markets. With that in mind, Mr. McCain last week proposed waiving federal rules that require older Americans to begin withdrawing funds as soon as they reach age 70 ½. On Monday, Mr. Obama praised Mr. McCain’s proposal, telling the Ohioans, “I want to give credit where credit is due.”
To impose the 90-day moratorium on home foreclosures, Mr. Obama would have the government, using its existing authority, require financial institutions that take advantage of the Treasury’s rescue plan to agree not to foreclose on the mortgages of any homeowners who are making “good faith efforts” to pay, even if their payments fall short.
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Alan is also the author of Body Brilliance:
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