Today, John McSame introduced his "new" economic plan in a campaign speech in Pennsylvania. After reading the article in the New York Times, I decided to do a little fact checking, as my initial reaction was that it sounded like McSame's plans would really only help the wealthiest. So, first is a summary of McSame’s "proposal" excerpted from the text of McCain’s speech in the NYTimes, followed my the facts.
- "On my orders, the Department of the Treasury will guarantee one hundred percent of all savings accounts for a period of six months."
- "Current rules mandate that investors must begin to sell off their IRAs and 401Ks when they reach age 70 and one half years old. Those rules should be suspended... Under the emergency measure I propose, we will also cut the tax rate for withdrawals from tax-preferred retirement accounts to ten percent."
- "I will cut in half the capital gains tax on stocks purchased and held for more than a year -- from a rate of 15 to 7.5 percent."
Continued Below:
Continued:
- "I will increase the amount of capital losses from $3,000 to $15,000, which can be deducted from your ordinary income in tax years 2008 and 2009."
- "I have proposed a one year spending freeze with certain exceptions for such things as defense and veteran care."
- "I will double the child deduction, from 3,500 dollars to 7,000 dollars."
- "Every person in America who chooses it will receive a 5,000 dollars towards the purchase of health insurance -- health plans that will be theirs to keep, even if they change jobs or move to another state."
- " And we will reduce the federal business tax rate from 35 percent -- the second-highest in the world -- to 25 percent."
- "I am also proposing today that for those who are between jobs, we eliminate all taxes on unemployment benefits."
Let’s look at the numbers, shall we?
- According the US Census Bureau, http://www.census.gov/... The median amount of money in an " interest-earning assets at financial institutions" is $ 4,000. And 62.8% of the households in the US have this in 2002. And if we toss in "Other interest-earning assets" which are held by a total of 3.1% of the population, this adds an additional median value of $30,000. Interestingly, this rate is down from 2000.
Comment: Who does it benefit to guarantee 100% of all savings since amounts up to $100K are already FDIC insured (and temporarily even up to $250K)?
- The first item, suspending the Required Minimum Distribution rules, is pretty lame, and again will only benefit those who are extremely wealthy.
The general formula behind this rule is to divide your IRA balance at the end of the year you turn 70 ½ by the by the applicable distribution period or life expectancy (from the IRS website). The period or life expectancy is from a table the IRS provides. If your balance were $100,000 then for a women at 71 years old, the amount you must withdraw is $100000/26.5 = $3773. And the minimum for each year is determined by the value of the IRA at the end of the previous year. So, if your IRA dropped a lot this year because (for some reason) it was all in stocks, the value would be lower, so you’d be required to take out less. I don’t see how the McCain plan affects anything. It seems like noise in the big picture.
The second item, the reduction to 10% of the withdrawals from tax-preferred retirement accounts is confusing to me...Currently tax-preferred retirement accounts are the type that you pay tax on when the money goes in, not when it comes out. So, you pay no tax when you withdraw, as long as there is not an early withdrawal. If there is an early withdrawal, there is a 10% tax penalty paid on it. So, I don’t have a clue what this part of McCain’s proposal means.
- Capital gains taxes on stocks purchased and held for more than a year will be cut from 15% to 7.5%. From the same site and pdf, we see that 29.4% of all households own stocks and mutual funds, with a median value of $10000. That is currently own (as of 2002). For the lowest 4 quintiles of the income levels in the US, the mean value is under $8600. However, if your federal tax rate is already less than 25%, then you already pay only 5% on capital gains, and this has been reduced to 0% as of 2008. So, the McCain plan will not affect anyone who is in a tax bracket of 25% or less. In other words, McCain’s plan will not affect anyone who is: single and makes less than $77100 per year, who is married filing jointly making less than $128,500 per year, or who is filing as head of household making less than $110,100 per year.
- According to the IRS, the limit on capital loss deduction is $3000/yr, but you can carry any amount over this to the next year. And capital loss is only on what is sold at a loss. More for the wealthiest.
- Does this include Medicare, Social Security and Medicaid? So no increases in people’s SS incomes? What does this mean? So "Homeland Security" funding will be frozen? Does John McCain want the terrorists to know we won’t spend more to protect the "Homeland?"
- You only get a per child tax credit if you have kids and if you pay taxes. If you already get the per child deduction that lowers your tax burden to zero, this obviously does nothing for you. The increase is supposed to reach $7000 per child by 2016.
- His plan on this is very vague. But note that the $5000 is for family coverage, and it is $2500 for single person coverage. From the AHIP Center for Policy and Research, we see that as of early 2007 (over a year ago)
Nationwide, annual premiums averaged $2,613 for single coverage and $5,799 for family plans in the 2006-2007 period. For single policies, annual premiums ranged from $1,163 for persons under age 18 to $5,090 for persons aged 60-64. For family policies, premiums ranged from $2,325 for policies covering children under age 18 to $9,201 for families headed by persons aged 60-64.
So McCain’s $5000 for family plans would not have covered the cost of the average family plan in 2006.
- This is not a new plan, and the plan is to phase it in by 2016. This idea seems to be directly from The Tax Foundation’s website (http://www.taxfoundation.org/publications/show/22917.html).
- As did Obama, so I guess McSame agrees with him on this?
Clearly most of McCain’s great "new" economic plan is geared toward the wealthiest people. It is also not clear how much of this is actually new, as much of it was already known. If you are in the top 1% income-wise, then his plan will be great. If not, then, not so much...