Wednesday, October 15, 2008

Good Little Stuff from Big Mac

It certainly wasn't the big-bang across-the-board tax-reform and taxcut plan that I and others lobbied for. But John McCain's "Pension and Family Security Plan" unveiled today on the campaign trail does have some solid pro-growth nuggets. I’m calling it some good little stuff.

The most important pro-growth measure is a reduction in the capitalgains tax rate to 7.5 percent in 2009 and 2010. Although I wish it were permanent, at least it will reward investors who scoop up undervalued assets, including bargain-basement stocks and underwater homes. Two years is not a very wide window. But this could promote a faster recovery in asset prices
and wealth creation.

Alongside the cap-gains cut, McCain is proposing to increase the amount of capital losses eligible for tax write-offs from $3,000 to $15,000 for tax years 2008 and 2009. It's an offset to ordinary income. And again, while it should be permanent, at least it will be helpful.

Also in his plan, withdrawals from tax-preferred retirement accounts will be taxed at the lowest rate (10 percent) for the first $50,000 withdrawn from these accounts. Tax rules forcing seniors to sell retirement-account stock holdings when they reach age 70.5 will be suspended. That’s good.

In effect, going into the final debate, McCain has a significant corporate tax cut and a modest capital-gains tax cut. He also wants to keep the Bush income-tax cuts in place. All of these measures are pro-growth.

I would have preferred a Paul Ryan modified flat tax with two brackets of 10 and 25 percent. In other words, a true across-the-board reduction in marginal tax rates as an economic recovery measure to connect with folks who are worried about recessionary losses for their jobs and home mortgages. Economic anxieties are big, and a big-bang tax-cut response would be optimal.

But cutting taxes for businesses, capital gains, and individuals does give McCain a lot of pro-growth meat on the bone for the big debate.

Now, if only McCain can succeed in selling these measures. Especially the corporate tax cut, which should be sold as a middle-class consumer tax cut inasmuch as corporations pass along their tax costs to consumers in the form of higher prices. This is the key to selling the corporate tax cut. McCain's senior advisors tell me he has been briefed on this language, but so far it hasn't materialized in the debates. Perhaps it will Wednesday night.

Really, the McCain tax contrast with Obama is not hard to make. In the last debate McCain referred to Obama's tax hikes as Herbert Hoover. I'd like to see Hoover reemerge tomorrow night.

3 comments:

Intrade said...

Puppeteer said :

    Love how you've used you show on CNBC to cheer lead for the Iraq War, a second Bush term and buying stock market all through late 2007. When will you be right about anything?

Intrade said...

Webbittown said :

    More crap from where the crap came from to begin with. The whole market should collapse and you'd have a proper readjustment to non-greedy living. All of this is being done to prop up real estate values to at least a 2006 level. Just remember that in the not too distant past all of it had no value whatsoever.

Just another Borrower and Spender.

Intrade said...

arnieh said :

    Mr. Kudlow....you continue to be a LOSER.