The race for the White House has become a contest of economic prowess - who has the best plan to ease the nation's financial crisis and help average Americans in distress. The latest proposals from Sens. Barack Obama and John McCain are intended to appease - and woo - voters who fear losing their jobs, homes and life's savings. Both attempt to balance the massive rescue plan in place for Wall Street with a menu of targeted relief for Main Street. There is good and bad in each, but the relief may be marginal and the long-term economic impact dubious.
Mr. McCain's $52.5 billion plan would boost unemployment benefits by 10 percent and lower the tax rate on withdrawals from individual retirement accounts and 401(k) plans; he also wants the government to buy subprime mortgages in foreclosure and refinance them into conventional loans so families could remain in their homes. Mr. Obama, his Democratic opponent, has put forth a $175 billion plan with new inducements: $60 billion in federal tax rebates this year, aid for state and local government to spend on infrastructure improvements, an extension of federal unemployment benefits and a 90-day moratorium on home foreclosures.
Mr. McCain doesn't say how he would orchestrate his solution for families facing foreclosure, a complex undertaking. And should the government facilitate Americans' pulling their money out of 401(k)s at deflated stock prices, when part of the problem here has been a lack of savings? Mr. Obama's moratorium on foreclosures sounds good, but it's the proverbial Band-Aid. After 90 days, then what?
In contrast, Mr. Obama's proposal to temporarily forgive taxes on unemployment insurance benefits may in fact help stimulate the economy because the jobless would likely spend that money.
Many economists suggest neither proposal offers enough to counter the effects of a downturn that could cut the nation's gross domestic product by as much as 2 percent. Some are proposing that as much as $300 billion be spent by the federal government to offset that loss. Whatever is spent would directly add to a mounting federal budget deficit.
The winner in November will have tough choices before him. He must be ready to act, but with the knowledge that the economy's continued decline could rival the Great Depression. Care must be taken to avoid significant long-term damage to the real economy, and President Bush should pledge to work with whomever is elected to immediately begin a concerted effort to blunt the recession's impact.