Candidates: Crisis planning

Adding to their economic plans, McCain and Obama make new proposals to ease strains on jobs, investments and housing.

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By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The world has changed a lot in the past two weeks, and the presidential candidates are scrambling to adapt.

Beyond supporting the financial rescue plan passed by Congress on Oct. 3, they have recently proposed a number of ways to help ease the effects of the credit crunch and economic downturn on Main Street.

Consider just two examples: Republican John McCain wants to temporarily cut the capital gains tax in half. And Democrat Barack Obama wants to offer a tax credit to businesses that hire new employees in the next two years.

Certainly, the next president's agenda will be changed by the financial crisis that has upended Washington and Wall Street. Experts and federal officials say that even if the financial rescue plan put into effect this week is a resounding success, it will still take time before the economy recovers.

For all their differences, Obama and McCain agree with each other on two things: Those receiving unemployment benefits should be temporarily exempt from having to pay income tax on those benefits; and seniors who are at least 70-1/2 should not be required to take minimum distributions from their 401(k)s and IRAs in 2008 and 2009.

Beyond that, however, they take different approaches to easing the financial strains Americans are feeling in terms of jobs, investment savings and housing. Those differences are likely to surface in Wednesday's night debate.

Here's a summary of some of their newest proposals:

Investments and savings

McCain

  • Tax withdrawals from IRAs and 401(k)s at just 10% in 2008 and 2009: Ten percent is the lowest rate in the income tax code and would apply to the first $50,000 withdrawn.
  • Reduce the capital gains tax to 7.5% from 15% for two years.
  • Increase the amount of capital losses that may be used to offset ordinary income annually to $15,000 from $3,000 for 2008 and 2009.
  • Temporarily exempt seniors who are at least 70-1/2 should not be required to take minimum distributions from their 401(k)s and IRAs in 2008 and 2009.

Obama

  • Allow penalty-free early withdrawals from their IRAs and 401(k)s made between Jan. 1, 2008 and Dec. 31, 2009. One could withdraw up to 15% of one's balance but not more than $10,000. In addition to being subject to income tax, normally such withdrawals made before age 59-1/2 are subject to a 10% penalty rate, which would be temporarily suspended under this proposal.
  • Temporarily exempt seniors who are at least 70-1/2 should not be required to take minimum distributions from their 401(k)s and IRAs in 2008 and 2009.
Jobs and unemployment

McCain

  • Temporarily eliminate taxes on unemployment benefits.

Obama

  • Give a temporary tax credit of $3,000 in 2009 and 2010 to companies for each new full-time employee it hires in the United States.
  • Temporarily eliminate taxes on unemployment benefits.
Housing and foreclosures

McCain

  • Order Treasury to buy $300 billion in primary-residence mortgages of delinquent or at-risk borrowers who also may owe more on their home than it is worth. Write the loan amount down to the current value of the home and convert the mortgage into a fixed-rate 30-year loan backed by the Federal Housing Administration.

Obama

  • Require any financial institution participating in Treasury's Troubled Asset Relief Program to put a 90-day moratorium on foreclosures for homeowners "acting in good faith."
  • Let the federal government lend to state and municipal governments to help counter the budget crunch faced by states due to the mortgage crisis.
Can these ideas do the trick?

Tax and savings experts have expressed some skepticism about some of the candidate's latest proposals as salves for what ails Main Street.

But even if they were all spot on, the Treasury and Federal Reserve have already in effect set the rules on the economy and markets for next year, said policy research analyst Dan Clifton of Strategas Research Partners. Both candidates' latest proposals, he told CNN, are "tinkering around on the margins."

"This is so much bigger than what the candidates can or can't do," said Brian Gardner, the Washington analyst for investment firm KBW. "The federal government has already gotten out one of the biggest guns."

Recovery, Gardner said, will only come when balance is restored between home prices and affordability. "Incomes have to rise significantly or home prices have to continue to fall."

- CNN's Christine Romans contributed to this report. To top of page

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