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 up to 15 percent of their IRAs or 401(k)s with no penalties for early withdrawal.
The economy is by far the most important issue to voters, polls have found, but some experts said that Obama's new proposals weren't comprehensive enough.
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 chairman.
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 to provide short-term emergency loans to struggling states or local governments that can't tap the bond market during the financial crisis.
"We need to give people the breathing room they need to get back on their feet," Obama told a crowd of more than 3,000 people during an afternoon speech at the SeaGate Convention Centre in downtown Toledo.
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, in addition to the funds being subject to regular 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.
The Illinois senator also reiterated his recent calls for an emergency lending fund, fee waivers for small businesses and an extension of unemployment benefits.
Some analysts' were underwhelmed by Obama's new ideas.
Their chief benefit would be largely psychological, said Stan Collender, a veteran Washington economic analyst. The ability to tap 401(k)s or freezing foreclosures, for instance, "would take one source of stomach-tightening away from people," he said. "It could make people feel a little bit better."
Call Margaret Talev, McClatchy Washington Bureau, (202) 863-2287.
