Presidential hopeful Sen. Barack Obama unveiled an economic recovery proposal on Monday that would create a federal facility to buy state and local government debt similar to the recently announced program to provide liquidity to the commercial paper market.
The Illinois Democrat announced his plan during a campaign stop in Ohio and said Congress should implement it "immediately," or he would make it one of his first projects as president.
Sen. John McCain, the Republican presidential candidate from Arizona, followed on Tuesday with his own $52.5 billion proposal emphasizing tax cuts and government-sponsored mortgage and savings provisions. McCain presented his package in Pennsylvania as a set of initiatives he would undertake as president.
Under Obama's plan, the Federal Reserve and Treasury Department would jointly create a facility to act as a funding backstop for the state and local government debt market. If the Fed doesn't have legal authority to create such a facility, it would work with Congress and the Treasury to implement the program.
"For all those cities and small towns that are facing the choice between cutting services like health care and education or raising property taxes, we'll provide the funding to prevent those tax hikes from happening," he said.
Obama also proposed allowing families penalty-free withdrawals of 15% of their retirement investments, up to a maximum of $10,000, through 2009.
During a McCain campaign conference call, former congressman Rob Portman said of Obama's plan: "There is currently a hardship withdrawal for 401(k)s and most plans permit that. There's also withdrawal, by the way, for first-time home buyers, and there's also the ability to get a loan up to $50,000. So I'm not sure what impact that would exactly have, except that it would be taking [assets] out of retirement savings at a time when those assets are likely be at a very low value."
Obama's plan also would freeze home foreclosures for three months, eliminate capital gains taxes on small business investments, fast-track loan guarantees to the automobile industry, and establish a $25 billion fund for state and local infrastructure projects and schools. The fund would "save one million jobs," he said.
The Obama campaign stated that the measures in the proposal could be implemented quickly through emergency legislation or under existing authority.
McCain's "pension and family security plan" would temporarily cap individual retirement account and 401(k) withdrawal taxes at 10%, reduce capital gains taxes for 2009 and 2010, and eliminate taxes on unemployment benefits.
In addition, McCain would direct the Treasury secretary to implement a program to purchase mortgages directly from homeowners and mortgage servicers and instead provide 30-year mortgages at interest rates reflecting the current market value of the home. The mortgage program would cost about $300 billion, he said.
A statement from Obama campaign spokesman Bill Burton said McCain's plan "would spend $300 billion to bail out the same irresponsible Wall Street banks that got us into this mess without doing anything to help jump-start job growth for America's middle class."
One key difference between the plans was Obama's provision to buttress state and local government finances. McCain's plan contained no comparable measures.
"There are hundreds of billions of dollars in backlogged projects" at the state and local level, said Michael Bird, federal affairs counsel at the National Conference of State Legislatures. "And in the sense that we are partners in economic growth and economic turnaround, everyone has to recognize that because of our balanced budget requirements [the lack of funds is] postponing our participation and contribution to economic turnaround."