John McCain wants to secure your retirement account by making it easier for you to liquidate it

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On Monday Barack Obama unveiled a less-than-compelling list of new economic proposals to combat these economic hard times. Now John McCain has his own new list, dubbed the Pension and Family Security Plan. And guess what! His proposals may be even less compelling than Obama’s! The three McCain ideas I hadn’t heard before are:

1. Withdrawals of up to $50,000 a year from tax-preferred accounts–IRAs and 401(k)s–should be taxed at 10% in 2008 and 2009.

2. The amount of capital losses which can be used to offset ordinary income should be increased from $3,000 to $15,000 in 2008 and 2009.

3. The maximum long term capital gains tax rate should be reduced to 7.5 percent in 2009 and 2010.

No. 1 is interesting. McCain has already proposed (and Obama has endorsed the idea) that seniors should be free not to make withdrawals from their retirement accounts if they don’t want to. Now he’s saying they should get a tax break if they do make withdrawals. I guess the idea is to give them more flexibility, which is probably a good thing. McCain’s tax cut, though, would also seem to give those below retirement age more incentive to withdraw funds too. My least favorite among the four new proposals Obama unveiled yesterday was one to suspend the 10% tax penalty on retirement account withdrawals before the age of 59 1/2. McCain would keep the 10% penalty, but by cutting the tax rate on withdrawals to 10% you’d get pretty much the same effect. Unless his tax break were restricted to those 59 1/2 and older. Which would be so age-ist.

I guess No. 2 would have some impact as a relief measure, but it would also give people strong incentive to sell assets over the next couple of years, thus putting continued downward pressure on prices. Same with No. 3. There’s an argument to be made that permanently lowering the capital gains tax rate would raise asset values and make the economy more productive and yada yada yada, although the capital gains rate is already so low that I think we may be reaching a point of rapidly diminishing returns on that front. But McCain’s proposed capital gains tweaks are temporary, and when you’re trying to achieve temporary economic stimulus, messing with capital gains tax rates seems like a profoundly inefficient and maybe even counterproductive way to do it.

McCain’s much-maligned proposal to spend $300 billion buying up mortgages is more promising than any of these, I think. Yeah, it’s poorly formulated, and needs big changes to be anything but a windfall for both lenders and homeowners. But if tweaked into a something like a shared-equity mortgage plan, where government gets some of the upside, direct government purchases of mortgages would probably make sense.