New Ideas for Spending Money

Where do they come up with this stuff?

In the face of a plunging stock market and moribund credit markets, both Presidential candidates are reaching deeper into their goodie bags to come up with new bribes, er, enticements to try and stimulate the economy. Sure, because $700 billion to buy up banks and mortgages wasn’t enough.

Last week John McCain fired off a salvo. He proposed rescinding the requirement that owners of IRA’s and 401K’s have to start taking withdrawals from retirement accounts starting at age 70 ½. Why force people to sell assets into a down market, when that just increases the downward pressure on stock values? Actually, I think this is a pretty good idea, but then again, I’ve never heard a good argument for why mandatory withdrawals from retirement accounts were necessary in the first place.

After meeting with his economic advisors over the weekend, McCain apparently felt that anything else they proposed was too gimmicky, so he hasn’t come out with anything new this week. Of course, there is one more presidential debate coming up, so maybe he’s saving up for that.

In the meantime, Barack Obama came out with multiple gimmicks, er, policy proposals this week. First, he wants to mail out a $1000 check to everyone whose household income was less than $150,000. He also wants to extend unemployment benefits for another 13 weeks. This looks like a straightforward increase in welfare to me, pure and simple.

Senator Obama wants to impose a three month moratorium on foreclosures for any bank that accepts the Federal bailout money. You have to wonder what the economic point of this is. Does he anticipate that people will start paying their mortgages again after a three month grace period? Wouldn’t an increase in the number of foreclosures in process (loans go delinquent, but none ever get resolved) put even more stress on the banks that taxpayer money is going to bail out? The political point is a little more self evident: “Vote for me, folks, and I’ll give you three months free rent!”

Then there is the idea of removing penalties for 401K withdrawals. This allows you to get the tax break for contributing to a retirement plan, without actually having to forego the immediate consumption. Americans don’t save enough for retirement now, so let’s make it easier to consume instead of invest. This is the triumph of short term gratification over long term planning. Times may be tough now, but they will be even tougher when you are too old to continue working.

My personal favorite among Senator Obama’s new proposals is the tax credit for adding employees to the payroll. He has proposed a $3000 tax credit be given to businesses for every person they hire. This is basically offering a bribe to go out and hire people, but it is not even an effective bribe. In my hiring and firing, if I need to hire people, I hire them, and $3000 from the government isn’t nearly enough to sway my opinion. A new employee costs at least $20,000 a year. Unless you have enough business to justify that expense, a $3000 dollar subsidy doesn’t begin to cover that cost.

As a conservative, I long for the days when every problem didn’t automatically become the concern of the US government. Both parties seem to be caught up in the game of seeing who can offer more tax revenue to the citizenry. I’ll be happy in three weeks when the Pander fest known as the general election campaign is over.