Fiscal Policy: The Latest From New America

The Assets Report 2009

Asset Building — Tue, 14 Jul 2009 22:49:00 -0400

Asset ownership plays a central role in the economic security of American families and the broader economy. Assets can be deployed productively, such as to pay for a college education, or tapped to help individuals and families weather unexpected events. Additionally, assets have behavioral effects that can change the manner in which people think about and plan for the future.

Summary and Analysis of President Obama’s Education Budget Request

Education Policy — Mon, 11 May 2009 02:04:00 -0400

President Barack Obama submitted his first budget request to Congress on May 7, 2009. This request follows the initial summary budget request he submitted in February that included only aggregate funding levels for federal programs and agencies.

2009 Education Appropriations Guide

Education Policy — Thu, 12 Mar 2009 17:42:00 -0400

Congress completed the fiscal year 2009 appropriations process on March 10th, 2009, finalizing annual funding for nearly all federal education programs through September 2009 at $62.6 billion, up $3.4 billion from the prior year. Making sense of the federal education budget and the appropriations process can be a frustrating task for education advocates, state and local policymakers, the media, and the public. The now concluded fiscal year 2009 appropriations process is no exception due to numerous stopgap funding measures and emergency economic stimulus legislation.

More on the President’s FY2010 Budget Blueprint

Fiscal Policy — Mon, 09 Mar 2009 09:08:00 -0400

In our previous release (President Obama's FY2010 Budget), we discussed the broad fiscal impact of the FY2010 Budget Blueprint. We commended the President for having a specific fiscal goal, honestly budgeting for expected costs, and for providing offsets for many of the new policies he supports. However, we expressed strong concern that the budget included items in the baseline (such as AMT patches, Medicare patches, and the renewal of the 2001 and 2003 tax cuts), as a way to avoid paying for

Analysis of The American Recovery and Reinvestment Act

Fiscal Policy — Tue, 17 Feb 2009 16:49:00 -0500

Today, President Obama signed into law the American Recovery and Reinvestment Act of 2009. The "stimulus bill" represents the latest and largest effort by the federal government to boost the deteriorating economy. (For details of all efforts to date, see www.usbudgetwatch.org/stimulus).

Moving Forward with Bipartisan Tax Policy

Fiscal Policy — Thu, 12 Feb 2009 15:31:00 -0500

U.S. tax policy is urgently in need of reform. Our tax system is overly complex and has failed to keep pace with changing economic conditions. The current economic crisis has led to an escalating budgetary shortfall, which will exacerbate the already significant fiscal challenges facing the country. Moreover, looming changes written into the tax law will require Congress to make major decisions regarding the tax code. On December 31, 2010, most of the tax cuts passed in 2001 and 2003 ("the Bush tax cuts") will expire. In the meantime, the

Comparing the Stimulus Packages

Fiscal Policy — Wed, 11 Feb 2009 16:34:00 -0500

Yesterday, the Senate passed its version of the American Recovery and Reinvestment Act of 2009 by a vote of 61 to 37. Differences between the House and Senate are being worked out in a conference committee.

In total, the House bill costs roughly $820 billion over ten and a half years, while the Senate bill costs $838 billion. Although similar in size, the two stimulus bills contain
a number of important differences. The Senate version relies more on tax cuts and less on spending than its House counterpart; and money is distributed more quickly.

Paying for the Stimulus

Fiscal Policy — Fri, 06 Feb 2009 14:15:00 -0500

Summary

We are currently in the midst of two immense economic challenges: an immediate and severe financial crisis, which has already wiped out over $20 trillion in global wealth; and a longer-term fiscal crisis, which existed before the financial crisis but will be made worse because of it.

CRFB Warns Against Slipping Permanent Policies into Stimulus

Fiscal Policy — Wed, 28 Jan 2009 16:39:00 -0500

WASHINGTON, D.C. - Today, the Committee for a Responsible Federal Budget (CRFB) warned against slipping policies intended to be permanent, into the stimulus bill under the guise of temporary stimulus measures.

Federal Debt and Interest Costs

Fiscal Policy — Tue, 27 Jan 2009 17:03:00 -0500

Summary

The Congressional Budget Office's January estimates of baseline federal budget deficits have grabbed the attention of members of Congress and the public. The
cumulative effects of persistently large deficits show up in the stock of debt held by the public and the net interest costs of servicing that debt. This brief will
provide historical data on those items and CBO's current projections. It also will discuss some of the risks to CBO's estimates.

Debt Held by the Public

A Budget We Can Believe In

Fiscal Policy — Tue, 27 Jan 2009 12:29:00 -0500

To: President Barack Obama

From: Robert Bixby, William Galston, Ron Haskins, Julia Isaacs, Maya MacGuineas, Will Marshall, Pietro Nivola, Rudolph Penner, Robert Reischauer, Alice Rivlin, Isabel Sawhill, Eugene Steuerle

Subject: A Budget We Can Believe In

Date: January 27, 2009

The Fiscal Roadmap Project

Fiscal Policy — Thu, 18 Dec 2008 17:12:00 -0500

The Fiscal Roadmap Project was created to help policymakers navigate the serious economic and fiscal challenges facing the country.

Currently, fiscal policy is being shaped in a haphazard way: bailing out a firm here, letting another firm go bankrupt there; attaching conditions to a company bailout, writing a check to another company without strings attached. These are not ordinary times.

CRFB Projects a One Trillion Dollar Deficit

Fiscal Policy — Mon, 10 Nov 2008 17:59:00 -0500

The fiscal year 2009 deficit could reach over one trillion dollars, according to an analysis by the Committee for a Responsible Federal Budget (CRFB). This deficit would be more than twice as large as the 2008 deficit of $455 billion and would represent a post-war record both in nominal terms and as a share of GDP.

"These numbers are simply astonishing," said Maya MacGuineas, president of CRFB. "Of course we can't try to balance the budget right now when the economy is in such turmoil, but when the deficit has that many zeros, you have to ask yourself how we let things get so bad. If a trillion dollar deficit isn't a wake-up call for the need for fiscal responsibility, I don't know what is."

The Committee for a Responsible Federal Budget's analysis begins with the Congressional Budget Office's (CBO) baseline estimate of a $438 billion deficit. It adds $160 billion for costs for since-passed legislation, including an AMT patch, business and clean energy tax breaks, disaster relief, additional discretionary spending, and emergency loans. We assume $62 billion in lower revenues and higher costs from slower economic growth and $150 billion in on-budget bailout costs. We also assume the passage of a $200 billion stimulus package.

Leon Panetta, CRFB co-chair and former Chief of Staff to President Clinton, suggested that these deficit numbers will have real implications for the next President. "Senator Obama is being handed an immense challenge which could impact many of his campaign promises," warned Panetta. "Recall that President Clinton had to drop his plans for middle-class tax cuts in his first year due to fiscal concerns - and he faced deficits of well under $300 billion."

The actual FY 2009 deficit could differ significantly from CRFB's trillion dollar estimate depending on how CBO budgets for the $700 billion Troubled Asset Relief Program (TARP), which could recoup much of its costs over time. CRFB assumes that the program will be accounted for primarily based on the expected net cost to the government (similar to the Federal Credit Reform Act standards), as the Congressional Budget Office has suggested it would likely do; however, the Treasury Department is considering accounting the first $250 billion - spent on the purchasing of bank equities - on a cash basis.

The costs of the foundering economy may also differ. CRFB assumes the cyclical effects on revenue and spending in 2009 will be similar to those of past recessions, while CBO (in September) predicted they would not be as severe, and some analysts are predicting they will be considerably worse. Furthermore, the actual price of stimulus legislation is far from certain. House Democrats have been discussing a $150 billion stimulus package with $60 to $100 billion passed immediately, while President-elect Obama has suggested a $190 billion plan-though those costs could be spread over more than a single year. There is also serious discussion about plans reaching $300 billion or more. Without comments on whether it is warranted, we believe the momentum is moving in the direction of a larger package.

Total borrowing will be much greater than the estimated one trillion dollars in light of various bailouts which require new capital but are not budgeted for on a cash basis.

"Borrowing this much money may be unavoidable given current economic conditions," said former Congressman Bill Frenzel, co-chair of CRFB. "The government's top priority over the next year must be to stabilize the financial markets and the economy. But we can't just borrow a trillion dollars and call it a day. We must tie any stimulus plan to a credible plan to put the budget on the path to recovery, so that we aren't laying the foundation for the next economic crisis stemming from excessive government debt."

See below for the complete release, including a breakdown of CRFB's analysis.

Fiscally Responsible Stimulus

Fiscal Policy — Mon, 10 Nov 2008 17:50:00 -0500

In light of the current state of the economy, it appears likely that Congress will pass another stimulus package...

The Committee for a Responsible Federal Budget recognizes that there is a strong enough risk of a prolonged recession that a fiscal stimulus package may well make sense. Given the many risks associated with a significant downturn, it makes sense to err on the side of caution in determining whether more stimulus is appropriate. Assuming Congress proceeds with plans to offer some type of stimulus package, CRFB offers three recommendations.

1) The package should be designed to accomplish economic, not political, objectives. There is already a good deal of momentum behind the idea that there should be another stimulus package and the size of this package seems to be growing by the week. It is critical that this not become a political package filled with Members' favorite items or unrelated spending and tax initiatives, dress up as stimulus.

Congress has a poor recent track record on this point: the September $700 billion dollar package included tens of billions of dollars in unrelated giveaways like tax breaks for sales of wooden arrowheads and a credit for turning chicken waste into jet fuel. The package also included more substantive measures like the $80 billion patch on the Alternative Minimum Tax, which never received the full and open debate it deserved because it was rushed through as part of an emergency spending measure. If Congress passes a second stimulus proposal, CRFB urges it to pass a "clean" bill that is free of unrelated provisions and political bargaining chips.

2) Borrowing should only be used for temporary measures. Pay-as-you-go (PAYGO) rules need not apply to temporary fiscal stimulus-in fact, any short-term or immediate offsets would defeat the purpose of fiscal stimulus, which relies on deficit spending to help boost aggregate demand and GDP.
However, if the federal government borrows too much, it risks creating serious long-term damage to the nation's economy. While deficits can stimulate growth and encourage consumption in the short-run, they stifle long-run growth by crowding out investment. Interest payments also crowd out other areas of the budget, and present a particularly worrisome situation if they are growing faster than the economy. If the new debt associated with the stimulus becomes permanent, we will pay interest on that borrowing indefinitely in return for temporary employment and consumption gains. The long-term fiscal picture is already quite bleak; and it would be a mistake to make the situation worse by prolonging stimulus policies and borrowing past the window of need.

Accordingly, CRFB strongly urges Congress to make all parts of any stimulus package temporary. The stimulus should not include outlays or tax cuts that extend beyond the period in which they are expected to mitigate the effects of an economic downturn. Permanent policies developed to encourage economic growth, such as fundamental tax reform or investment spending on areas such as energy, infrastructure and research, should be evaluated on their own merits and paid for rather then deficit-financed. Part of the stimulus agreement should be that Congress will find corresponding offsets for any tax or spending policies that are passed as part of a stimulus package, but have costs beyond the period when the economy is in recession.

3) The creation of a mechanism to address fiscal imbalances should be included with any stimulus package. We strongly recommend that any stimulus package include a mechanism to help start the process of addressing the nation's long-term budget imbalances. As the economy struggles to gain its footing, it is not the time to implement the types of policies-raising taxes and cutting spending-that will be necessary to re-balance the country's short- and long-term budget. But a stimulus package should put in place the mechanism to begin crafting a longer-term budget plan. This could take the form of a Members Working Group, or a Task Force to present recommendations that could be implemented once the economy has stabilized. Such an action would send an important signal to markets and our creditors that the current economic crisis is not being viewed as an excuse to borrow endlessly without a credible plan to pay down the debt in the future.

Read the full PDF below.

Guide to Health Care Policy: The 2008 Presidential Election

Fiscal Policy — Fri, 31 Oct 2008 07:56:00 -0400

One of the most pressing issues facing policymakers in the United State is rising health care costs. Cost growth is putting ongoing stress on the budgets of families, employers, and governments. The U.S. already spends $2.2 trillion a year - 16 percent of GDP - for health care. Nearly a third of this comes from the federal government.

Health expenditures are projected to nearly double to $4.3 trillion in a decade, at which point they will represent nearly one-fifth of the economy. According to the Congressional Budget Office, by 2030 they could consume a third, and by 2080 nearly half of GDP.

As health care costs grow, there will be considerable pressure on the federal government's budget. Medicare, which offers retired Americans hospital insurance (Part A), physicians' services insurance (Part B), and a prescription drug plan (Part D), is expected to grow faster than any other single part of the budget as health care costs rise and the population ages. Likewise, Medicaid, which offers insurance for poorer Americans jointly with the states, and the State Children's Health Insurance Program (SCHIP), which works with states to insure children in low-income families who aren't eligible for Medicaid, will see their costs go up. Together, these three programs are expected to rise from 4.2 percent of GDP today to 8.1 percent in 2030 and 18.5 percent in 2082. That would be above the historical average of tax revenue raised to finance all government spending.

The rising cost of private insurance also affects the government's finances because compensation paid in the form of health insurance is not subject to taxation. As health insurance grows as a share of compensation, this "employer exclusion" costs the government more in lost revenues. In 1993, the exclusion resulted in $46 billion in forgone revenue from the income tax. Last year, that number was $106 billion. By 2011 it will be $145 billion.

Despite the amount the federal government spends on health care, there are nearly 46 million Americans without insurance and rising costs threaten to grow the rolls of the uninsured. Furthermore, there are many areas of our health care system where the quality lags behind other nations even as we pay a higher price.

The three inter-related issues - cost, coverage, and quality - dominate the health care debate. While there is little agreement about how it should be done, most Americans agree that something is needed to improve the current system.

Senators McCain and Obama have each proposed a set of reforms to the current health care system. But even accounting for the savings that could be achieved in Medicare, Medicaid, SCHIP, and the employer exclusion, both plans would come at a considerable cost to the U.S. Treasury.

Guide to Tax Policy: The 2008 Election

Fiscal Policy — Wed, 29 Oct 2008 10:58:00 -0400

The next president will have to address fiscal imbalances within the government and a dramatically rising federal debt. National debt has been on a more or less steady rise since 1974 when, after a steady decline from the massive debt accumulated during WWII, it hit a low of 33.6 percent of GDP. Total national debt was more than $10 trillion at the start of fiscal year 2009.

This rising debt is driven by entitlement growth, resulting from demographic changes and rapidly rising healthcare costs. An aging population, especially in light of the retirement of the Boomers, is projected to increase Social Security payments from 4.3 percent of GDP today to 6 percent in 2030. More significantly, Medicare and Medicaid are expected to grow from just over 4 percent today, to 18.5 percent of GDP by 2082. This level will exceed the average level of federal revenues over the past 50 years. Even under the most optimistic economic growth assumptions, revenues will not come close to keeping up with this spending growth.

Under reasonable assumptions, non-interest federal spending will climb to 35 percent of GDP by 2082, while revenue will reach 21 percent. This would leave a 14 percent of gap that would have to be made up for with additional borrowing. Interest on this debt is projected to reach 40 percent of GDP, resulting in the government being 75 percent of the economy.

This crisis may seem to be decades off, but the next president will need to make some choices about how to deal with them in the near term. The longer we wait, the worse these problems become and the more painful the reforms must be to maintain economic stability. At present, the 75-year fiscal gap, which measures the amount that the federal government either would have to cut spending or raise taxes immediately to stabilize the debt-to-GDP ratio over the next 75 years, is 6.9 percent of GDP under realistic assumptions.

The Congressional Budget Office has said that marginal tax rates would have to rise significantly to cover the entire shortfall using only individual and corporate income taxes. The 10 percent rate would have to rise to 25 percent, the 25 percent bracket to 63 percent, and the 35 percent bracket to 88 percent. Those numbers provide a clear indication both that these problems will need to be addressed in the near future, and that the solution will likely require a compromise that includes both spending and taxing changes.

Many analysts and policymakers believe that the tax system also suffers from structural problems that require fundamental reform. Some point to the complexity in the current system, which contains nearly $1 trillion in tax expenditures that often fail to achieve their stated goals. Others point to problems with the corporate income tax, which is among the highest statutory rates in the world.

Many economists believe the current tax code discourages saving and investment and advocate moving toward a consumption tax. Some argue that our tax system should be modified to better encourage or discourage certain types of consumption such as energy, healthcare, or education. Finally, many have distributional concerns over the current tax system, arguing that it either does too much or too little to redistribute income between groups.

But regardless of whether the concern is distribution, complexity, fairness, incentive structures, or economic viability, there is a growing consensus that the current tax system is in need of fixing.

Because of outstanding tax issues, specifically the expiration of the 2001/2003 tax cuts and continued expansion of the AMT, the next president and Congress will have no choice but to address tax policy. As they confront these specific issues, they should also focus on the broader question of how much we want our government to spend, and how we will raise the appropriate revenue to finance that spending.

To make an informed election decision, voters should be aware of the fiscal implications of each candidate’s tax proposals. In the following voter guide, US Budget Watch attempts to shed light on these often-complex policies.

Guide to Social Security: The 2008 Presidential Election

Fiscal Policy — Tue, 28 Oct 2008 09:17:00 -0400

Social Security is the single largest government program. In 2007, the program cost $585 billion and provided benefits for roughly 50 million retirees, dependents, survivors, and disabled workers. It is financed primarily through the payroll tax -- a 12.4 percent tax on wages up to $102,000. The tax is split equally between employees and employers. The remaining revenues come mainly from the taxation of Social Security benefits for wealthier recipients.

Next year, the program’s surpluses will begin to decline precipitously. The Social Security Trustees have repeatedly warned that the program is on an unsustainable path and that the system will begin running cash deficits in 2017. The trust funds have claims on government revenues sufficient to pay promised benefits until 2041, but redeeming the trust fund assets will require the government to raise taxes, cut government spending, or borrow. To finance promised benefits, payroll taxes would have to be increased from 12.4 percent today to around 16 percent in 2041 and increase gradually after that. Alternatively, benefits could be cut across the board by roughly 22 percent by 2041, and modestly cut on regular basis thereafter.

Changes will have to be made to Social Security. Ignoring the problem and pushing the necessary changes to a later date — as has been done in past years — only makes them more painful. Although there are hundreds of proposals to address Social Security’s long-term gap, most fall into two basic categories: cutting benefits or raising taxes.

The following table synopsizes the proposals and positions of both presidential candidates on reforming Social Security. For the full text of this paper, please see the PDF copy attached below.

	Barack Obama's Social Security Proposals	John McCain's Social Security Proposals
Tax Increases	Proposes a payroll surtax of 2-4% for individuals making over $250,000 a year. Has not specified the tax base or whether there would be corresponding benefits.	States "everything should be on the table" but has expressed strong opposition to raising taxes to increase revenue for Social Security.
Benefit Cuts	States "everything should be on the table" but has also argued that "cutting benefits is not the right answer."	Would be willing to accept necessary benefit cuts as part of a compromise plan and would consider reducing Social Security's Cost of Living Adjustments (COLAs).
Retirement Age	Does "not believe it is necessary or fair to hardworking seniors to raise the retirement age" and has stated that he would not do so.	Considering a plan that would increase the normal retirement age to 68 from the scheduled age of 67.
Private Accounts	Argues strongly against privatization. Supports implementing "Automatic Workplace Pensions" outside of Social Security.	Supports "add-on" retirement accounts, but not "as a substitute for addressing benefit promises that cannot be kept."
Bipartisanship	Advocates for taking a bipartisan approach to reforming the system. Argues that to reform Social Security, "we should approach it the same way Tip O'Neill and Ronald Reagan did back in 1983."	Points to the 1983 deal between President Reagan and Speaker Tip O'Neill as a model for reform, stating: "I'll reach my hand out to the Speaker of the House Nancy Pelosi. I'll reach my hand out to Harry Reid."
Resolve to Act	Is "committed to ensuring Social Security is solvent and viable for the American people, now and in the future." States "it is common sense that we are going to have to do something about [it]." Does not mention Social Security frequently on the campaign trail.	States he will "submit a plan to save Social Security... and I'll ask Congress to do the same.... no more kicking the can down the road... no more hoping that a future generation of leaders will have the courage we lack." Does not mention Social Security frequently on the campaign trail.

Guide to Stimulus Proposals: The 2008 Presidential Election

Fiscal Policy — Sun, 26 Oct 2008 12:36:00 -0400

Background

The United States is in the midst of an economic crisis. Financial institutions are failing, the credit markets are frozen, and global stock markets have experienced large-scale losses. This crisis has also had significant effects on the "real" economy. Home values have tumbled, consumption has dropped, and jobs are disappearing.

During economic downturns, the government regularly takes actions to try to combat the effects of the decline. Most of its actions fall into one of four categories: monetary stimulus, fiscal stimulus, targeted stabilization, and economic relief.

Monetary stimulus involves the Federal Reserve Board ("the Fed") reducing interest rates, making it cheaper to borrow. The Fed is able to act quickly (economists refer to this as a short inside lag), and decisions are made by economists who can implement policy free of political or administrative considerations. But monetary stimulus has a long "outside lag," meaning it takes a while to work its way through the economy.

With fiscal stimulus, the government uses its power to cut taxes and spend in order to boost consumption, which in turn increases sales, employment, wages, and profits. Some of this stimulus occurs through "automatic stabilizers," as tax revenues are inevitably lower and unemployment and other benefits are inevitably higher during an economic downturn. Other fiscal stimulus requires action from Congress - such as the passage of tax rebates or new spending. Once put in place, fiscal stimulus can have a fast impact on the economy (it has a short outside lag), but it generally takes politicians a long time to put together a stimulus package, and when they do, it is often filled with "fiscal pork" - politically popular items that do little to stimulate the economy.

Targeted stabilization aims to boost economic performance by focusing on the immediate causes of an economic downturn. The goal is not to address structural problems, such as low levels of capital investment or insufficient educational attainment, but to prevent crises in certain sectors of the economy from spilling over into other areas of the economy. Although this strategy has the advantage of being more targeted, it carries the risk of misdiagnosis, and can easily be subject to political abuse. Unlike fiscal stimulus, this method of shoring up the economy does not require running deficits.

Finally, economic relief helps individuals and businesses to weather an economic downturn. The goal in this case is not to boost the economy as much as to mitigate the impact of the downturn on certain segments of the population. Many policies can simultaneously stimulate the economy and offer economic relief.

A number of measures have already been taken to address the current downturn. Since last September, the Fed has dropped the federal funds rate from 5.25 percent to its current rate of 2 percent. This past spring, the Fed twice took the unusual step of dropping the rate by 75 basis points (0.75 percent), rather than the normal 25 or 50 basis point reduction.

Additionally, Congress passed a $168 billion fiscal stimulus package in February that included tax rebates, spending on veterans and seniors, and "bonus depreciation" for businesses. This was followed by an $8 billion extension of unemployment benefits and a housing bill, which included over $16 billion in home buyer tax credits, $4 billion in targeted grants to communities hit by high foreclosure rates, and loan guarantees for some homeowners facing foreclosure. The bill also authorized the Treasury Department to loan money to or buy stock from Fannie Mae and Freddie Mac - the private Government Sponsored Enterprises (GSEs) which managed the secondary mortgage market. The Treasury has since taken over both of these institutions (and agreed to buy up to $100 billion of stock in each) to ensure that they remain solvent. To stabilize the housing sector and promote market liquidity, the Treasury has also agreed to purchase $10 billion mortgage-backed securities and allow Fannie Mae and Freddie Mac to purchase an additional $144 billion in securities. The Fed has also offered special loans and guarantees to a number of financial firms, including Bear Stearns, AIG, and J.P. Morgan.

So far this year, the Federal Deposit Insurance Corporation (FDIC) has had to cope with the failure of 15 banks, costing the FDIC insurance fund approximately $11.5 billion. The FDIC also increased the maximum insurable amount from $100,000 to $250,000 per account. As a further measure to shore up the banking system, the Fed announced that it will dramatically increase the amount of term auction loans it offers to $900 billion this year.

More recently, Congress approved a $700 billion "rescue package" for financial firms, which was designed to purchase "toxic" mortgage-backed securities and resell them as the market recovered. So far, $250 billion of the $700 billion has been dedicated to buying bank equity to improve banks' liquidity. The Treasury has not yet announced how it will spend the other $450 billion. In September, Congress approved long-term, low-interest loans to auto manufacturers and part suppliers totaling $25 billion dollars. Finally, the Fed has agreed to purchase up to $540 billion of commercial debt paper from money market mutual funds.

(Table of recently-enacted policies available on pdf version of report.)

Campaign Proposals

Both Senator McCain and Senator Obama have put forth proposals to strengthen the short-term economy, which they argue would complement their long-term economic policies. These proposals take the form of fiscal stimulus, targeted stabilization, and economic relief. Many have direct budgetary implications, although some are regulatory. Some of these proposals are meant to be enacted before the next president takes office, while others are meant to be sustained over a longer time period.

Senator McCain

In January, Senator McCain recommended cutting in the corporate tax rate, introducing new expensing rules that would allow companies to deduct the value of equipment up front, and making the research and experimentation tax credit permanent, to create a more favorable business and investment climate. In May, McCain proposed a "gas tax holiday," which would have suspended the 18.4 cents per gallon gasoline tax and the 24.4 cents per gallon diesel tax between Memorial Day and Labor Day of 2008, but would have expired by now. Currently, Senator McCain is supporting the following initiatives.

Purchase Distressed Mortgages - $0 (Part of the already passed $700 billion package)

Senator McCain supports a HOME plan to address the rising number of foreclosures. Under the plan, qualified individuals who purchased their homes after 2005 would be allowed to replace their sub-prime adjustable-rate mortgages with a 30 year fixed-rate mortgage guaranteed by the Federal Housing Administration (FHA), with the rate reflecting historical norms and the current market value of the home.

Senator McCain has also unveiled a Homeownership Resurgence Plan under which the government would purchase mortgages from creditworthy individuals living in their homes. According to his campaign, these mortgages would be replaced with FHA-guaranteed fixed-rate mortgages at terms manageable for the homeowner. The plan would cost $300 billion, but this money could come out of the $700 billion appropriated for the bailout. Senator McCain also supports the efforts of groups like NeighborWorks America that provide mortgage assistance to homeowners in their communities.

Strengthen Student Loan System - Cost Unknown

In order to address short-term liquidity concerns in the student loan system, Senator McCain has proposed a Student Loan Continuity Plan. Although he has not offered many specifics, according to his campaign he would ensure that the federal and state governments are prepared for possible loan problems, and would expand "lender of last-resort" capabilities while cracking down on troublesome private lenders.

Temporarily Cut Capital Gains Rates - $10 billion

Senator McCain would cut the top rate on long-term capital gains from 15 percent to 7.5 percent in 2009 and 2010 in order to encourage individuals to invest, which would in turn help support the stock market and other asset markets.

Offer Relief to 401(k) and IRA Holders - $36 billon

Senator McCain supports a number of measures designed to help individuals with IRA or 401(k) retirement accounts. Senator McCain proposes establishing a new flat 10 percent tax rate for the first $50,000 withdrawn from these accounts by retirees in 2008 and 2009. At the same time, he would suspend current rules that require individuals to begin withdrawing money from their retirement accounts once they reach age 70.5.

Eliminate Taxes on Unemployment Benefits - $6.5 billon

Senator McCain would exempt unemployment benefits from taxation for 2008 and 2009. This exemption would apply to all unemployed workers making less than $100,000 a year.

Allow Greater Deduction of Capital Losses - Cost Unknown

Under current law, individuals are allowed to deduct from their income taxes up to $3,000 a year in capital losses. Senator McCain would temporarily allow individuals to deduct up to $15,000 of capital losses for the years 2008 and 2009.

Reduce Energy Prices - N/A

Senator McCain supports a number of other measures to reduce the cost of energy products in the short term. He proposes lifting the federal moratorium on drilling for oil and natural gas in the Outer Continental Shelf and would direct the Department of Defense to work with states to develop the infrastructure to drill for fossil fuels in the OCS. Although it could take a decade or more before these oil and natural gas resources would be available, the McCain campaign has argued that drilling, along with other measures of his energy plan, would reduce current prices by signaling to "oil producing countries and oil speculators that our dependence on foreign oil will come to an end."

Senator McCain would also address oil speculation, which can have the effect of driving up the current price of oil. He has supported ongoing efforts in Congress to investigate the precise impact of energy futures markets on the price of oil, and has vowed "swift punishment" where abuses are found. He has also called for regulatory reform for the oil futures market.

Finally, Senator McCain would reform the laws governing ethanol in gasoline, arguing that they have artificially driven up both the cost of gasoline and the cost of food. To reduce the cost of both of these commodities, he would roll back rules requiring corn-based ethanol as an additive to gasoline, eliminate subsidies on domestically produced ethanol, and repeal the current tariff on imported sugar-based ethanol.

Senator Obama

Prior to the passage of the stimulus package, Senator Obama proposed a broad economic stimulus program. His $75 billion plan would have offered each worker a $250 tax rebate ($35 billion), offered Social Security recipients a one-time $250 supplement ($10 billion), established a fund to help families avoid foreclosure ($10 billion), offered relief to state and local governments ($10 billion), and extended unemployment benefits ($10 billion). The plan called for an additional $45 billion in rebate checks if the economy continued to do poorly.

Senator Obama voted for the congressional stimulus package that passed. He later proposed a second stimulus plan, which would have included $20 billion in stimulus checks and $30 billion for unemployment expansion, foreclosure assistance, and aid to state and local governments. Since the passage of the bills addressing unemployment insurance and foreclosure assistance, both of which Obama supported, he has modified his stimulus proposal several times, changing and adding a number of provisions. His current plan calls for the federal government to do the following:

Provide Tax Rebates - $65 billion

Senator Obama supports an "emergency energy rebate" of $500 per worker or $1,000 per family. Although he has not provided all the specifics, his campaign states that the rebate would be modeled after the "Making Work Pay Credit", which phases in for those earning less than $8,000 a year. He would also extend these expedited tax credits to retired seniors.

Senator Obama planned to pay for these rebates through a five-year windfall profit tax on oil companies when the cost of a barrel of oil exceeded $80 (with oil prices as high as $140 per barrel, this was expected to fully finance the tax rebates). Given the recent drop in oil prices to well below $80 a barrel, his campaign now says that the rebates should be issued even in the absence of revenues to pay for them.

Create a State Growth Fund - $25 billion

Senator Obama would create a state relief fund to prevent states from having to make significant spending cuts or tax increases, which could exacerbate an economic downturn. According to his campaign, more than 29 states face deficits totaling around $50 billion, and because most have to balance their operating budgets, many have begun cutting spending. Included in these funds would be money to counteract high heating costs. Senator Obama has also called for the creation of a Treasury Department mechanism that could loan directly to state and local governments having difficulty accessing credit to cover expenditures - a move similar to the Fed's recent purchasing of short-term commercial debt paper.

Create a Jobs and Growth Fund - $25 billion

Senator Obama would increase infrastructure investment by $25 billion to create jobs and stimulate long-run economic growth. The plan would focus on ensuring that those projects currently in progress were not sidelined due to revenue shortfalls and were fast-tracked where possible. Specifically, his plan would focus on two areas. First, it would replenish the Highway Trust Fund so that current projects to improve roads and bridges would not be stopped or slowed because of funding shortfalls. Second, the plan would fund and fast-track school repairs, especially those aimed at improving energy efficiency.

Provide Assistance for Small Businesses - $5 billion

Senator Obama would employ a number of measures to support small businesses. First, he would allow the Small Business Administration to make direct fixed-rate loans to small businesses though its Disaster Loan Program. Second, he would expand the SBA's loan guarantee program by temporarily eliminating fees for borrowers and lenders. And finally, he would extend current tax rules, which allow companies to deduct their first $250,000 in qualified expenses for one year.

Implement Incentives for Job Creation - $40 billion

Senator Obama would offer a $3,000 per employee tax credit to corporations for every additional full-time employee hired during 2008-09. The tax credit would be enough to offset the cost of payroll taxes to the company for the first $50,000 paid to each new employee.

Offer Relief to 401(k) and IRA Holders - Unknown

Senator Obama would temporarily suspend rules that impose a tax penalty on early withdrawal from a 401(k) or IRA plan, allowing workers below retirement age to withdraw up to 15 percent or $10,000 (whichever is less) from their retirement accounts. At the same time, he would suspend rules that require individuals to begin making withdrawals from their IRA or 401(k) accounts at age 70.5 and would exempt withdrawals, up to the minimum required amount, from taxation.

Help Laid-off Workers - $10 billion

To assist unemployed workers who have difficulty finding new jobs in a weak economy, Senator Obama proposes extending unemployment benefits for an additional 13 weeks and temporarily suspending taxes on these benefits.

Provide Relief for Mortgage Holders - $12.5 billion

Senator Obama would mandate a 90-day moratorium on foreclosures for companies participating in the Troubled Assets Relief Program (TARP), provided the homeowner was "making a good faith effort" to pay his mortgage. In addition, Senator Obama would ask the Treasury Department and the Department of Housing and Urban Development to more aggressively pursue revisions in the terms of some mortgages, and propose new legislation to reform the bankruptcy code so judges can redefine mortgages on primary residences. Finally, he would fast-track his Universal Mortgage Tax Credit proposal, which would provide a refundable tax credit to taxpayers who do not itemize equal to 10 percent of their mortgage interest payments.

Reduce Energy Prices - N/A

Senator Obama has made a number of proposals designed to reduce energy costs. He would crack down on excessive energy speculation and increase transparency in the oil futures market, in part closing energy industry market loopholes. He would tap some of the oil from the U.S. Strategic Oil Reserve. And he would encourage domestic oil production by requiring oil companies to develop the land they have leased but are not drilling on, or otherwise forfeit their leases.

Extend Additional Loan Guarantees to Automakers - $4 to $7.5

Senator Obama has called for doubling the amount of loan guarantees to the auto industry, from $25 billion (which Congress recently passed) to $50 billion. These loans would be focused on helping the auto industry "retool" by producing more fuel-efficient cars and developing new battery technologies, among other changes. Senator Obama would also speed up implementation of the first $25 billion in loan guarantees.

See the full paper outlining these plans below.

The Energy Security for American Families Initiative

adminn — Tue, 23 Sep 2008 08:11:00 -0400

Financing the Productive Economy: The Heartland Development Bank

Economic Growth — Thu, 18 Sep 2008 00:24:00 -0400

Fiscal Policy: The Latest From New America

The Assets Report 2009

Summary and Analysis of President Obama’s Education Budget Request

2009 Education Appropriations Guide

More on the President’s FY2010 Budget Blueprint

Analysis of The American Recovery and Reinvestment Act

Moving Forward with Bipartisan Tax Policy

Comparing the Stimulus Packages

Paying for the Stimulus

Summary

CRFB Warns Against Slipping Permanent Policies into Stimulus

Federal Debt and Interest Costs

A Budget We Can Believe In

The Fiscal Roadmap Project

CRFB Projects a One Trillion Dollar Deficit

Fiscally Responsible Stimulus

Guide to Health Care Policy: The 2008 Presidential Election

Guide to Tax Policy: The 2008 Election

Guide to Social Security: The 2008 Presidential Election

Guide to Stimulus Proposals: The 2008 Presidential Election

Background

Campaign Proposals

Senator McCain

Senator Obama

The Energy Security for American Families Initiative

Financing the Productive Economy: The Heartland Development Bank

Infrastructure and Economic Opportunityread more

Infrastructure and Economic Opportunity
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