A new Tax Policy Center brief looks at the following proposals to respond to the economic downturn:
I agree with TPC that none of these are likely to help, although McCain's capital gains tax changes stand out as the worst proposals. My colleagues may have different opinions.
Senator McCain proposes to exempt unemployment compensation from federal income tax in 2008 and 2009 for most taxpayers, suspend required distribution rules for IRAs, lower the tax on some withdrawals from retirement savings accounts, increase the limits on the deductibility of capital losses, and lower the tax rate on long-term capital gains. Senator Obama would eliminate all taxation of unemployment compensation, allow limited penalty-free withdrawals from retirement savings account, and provide firms a refundable credit of $3,000 for each additional employee they hire. All of those proposals would be temporary and expire by 2010 or 2011.
I also agree with TPC that the one effective thing the government chould do in response to the downturn is to extend unemployment benefits for those who are suffering long spells of unemployment. Not to fault TPC too much, but they should have mentioned that Obama not only favors extending unemployment compensation, but he introduced a bill in the Senate to do so more than a month ago.