Why Senator Obama’s Economic Plan is better than Senator McCain’s: 3 Major Key Points.

As we wind down to the last few days of the election, it is important to remember that whomever is elected there will be an economic mess awaiting the new CEO of our country.  Make no mistake, there will be some hard choices that will confront this nation for the next 4 years so having a solid economic plan from the beginning is important for the financial health of our country.  After looking deeply into both plans, it is my belief that Senator Obama’s plan is the best for the overall health of the economy.

I’ll go through 3 important areas to clear this up.

Reason #1 – Taxes

In essence this is the major policy issue that has been hit on the stump.  McCain’s message has been providing tax cuts for corporate America trying to encourage job growth while Obama looks to cut taxes for 95% of Americans.  This chart from the Washington Post does the best clarification of the plan:

senator obama and mccain tax plans

As you can see from the chart, the Obama tax plan stands to benefit the majority of Americans.  In fact, the tax plan under Obama would give tax cuts to anyone making under $111,646 a year.  So if you make under $111,646 you are better off under the Obama plan, period.  However, between $111,646 and $226,981 not much of a difference exists.  However, the big change occurs on incomes over $603,403.  That is where people will really feel the impact.

Now how many people make over $600,000 a year?

income distribution

Only 1.5% of all American households even make more than $250,000 a year.  90% of Americans are certain to do better under the Obama tax plan because look above, 90% of households make less than $118,200.  And those that fall between $166,200 and $250,000 is only 3.38% and they stand to be nearly the same between Obama and McCain.  That is why the mincing of words between 90% and 95% has gotten a few confused.  Bottom line:

90% will do better under the Obama plan.

3.38% will stay the same between both plans

6.62% will do a whole lot better under the McCain plan

Reason #2 – Energy

On energy both candidates advocate a cap and trade system to reduce carbon emissions.  However, Obama has been much more clearer that he would promote renewable energy through direct investment and ultimately creating new jobs in the industry.  Senator McCain has discussed more specific options including drilling here and drilling now but really hasn’t had a visionary proposal to wean us off any foreign fuel addiction.

The fact that Senator Obama has been clear about these green jobs is both good policy but also good for the economy (which needs the help) right now.  Employment opportunities will be created and given how quickly jobs are being lost this comes at an excellent time.  In addition, in the long-term the United States is the biggest consumer of foreign oil so economically speaking this is an investment that we can make right now that will pay high dividends in the future.

Reason #3 – Housing

On housing, Senator McCain came out stating that he wanted to allocate $300 billion purchasing toxic mortgages from lenders to take them off their books at face value.  This idea was wrong from the beginning.  How quickly we forget that the House of Representatives shot down the initial U.S. Treasury plan of $700 billion because both parties got massive calls from constituents expressing their disgust at the initial plan.

The reasons for the disgust, was exactly what Senator McCain was pushing.  This notion that lenders will offload toxic mortgages onto the government balance sheet.  Well he circumvented any checks and stated he wanted the government to buy loans at face value.  This only benefits one group, irresponsible lenders and greedy Wall Street.  The clear loser here is the American taxpayer and homeowners.  What then after the loan is sold to the government?  This doesn’t negate the fact that the homeowners still is in trouble with his or her loan.

Do you really think lenders are going to sell their best loans to the government?  Even the Obama camp came out strongly against this view:

DAYTON — Democrat Barack Obama told a campaign audience today that Republican John McCain’s mortgage buyout plan would cost taxpayers billions of dollars and reward bad behavior by lenders.

Speaking in Dayton as he started a two-day bus tour of hotly contested Ohio, Obama said McCain’s plan would force the government to absorb the full cost of renegotiating mortgages to prevent borrowers from losing their homes. Lenders should share some of the costs, he said.

The Democratic presidential candidate’s campaign also criticized McCain’s mortgage plan in a new 30-second ad to air nationally on cable TV, a relatively inexpensive way of drawing media attention to an issue.

Obama took another jab at McCain, whose family owns several houses, when he renewed his call to change bankruptcy laws to help hard-pressed borrowers keep their homes.

“Right now, the law lets bankruptcy judges write down your mortgage if you own six or seven homes,” he said, “but not if you have only one.”

It is amazing how Senator McCain can be so quick to focus on earmarks which made up $29 billion in 2006 yet be so quick to flush down the toilet $300 billion, over 10 times that amount.  You’ll also notice how McCain has since backed away from this notion since it even had scant support in his own party.

McCain is so wrong on this issue.  McCain also mentioned putting in a bottom on house prices which is absurd.  Home prices are determined by local market conditions including jobs, schools, neighborhood, and local area incomes.  Putting in a bottom does absolutely nothing.

Senator Obama is more specific about what he wants to do to help the housing issue.  Make no mistake, no one party can solve the issue alone but bad policies can make the issue worse.  Here are 3 things that Senator Obama proposes:

(1)  Create a universal mortgage credit:  This credit will provide an average of $500 to 10 million homeowners, the majority that make less than $50,000 a year.  This is important because this money will be spent (most likely) and it helps the true middle class of our country.

(2)  Ensure more accountability in the subprime mortgage industry:  First, Senator McCain’s former economic adviser Phil Gramm is the ultimate de-regulation thinker.  This is not someone who will ensure accountability.  Senator Obama has been the first to propose enforcement of federal laws to stop fraud.  He also propose more transparency on mortgage loan applications.

(3)  Close bankruptcy loophole for mortgage companies:  This is so important and vital.  The Republican side when the initial $700 billion bailout came about fought hard against cram-downs.  What are cram-downs?  Essentially, a bankruptcy judge can force a lender to lower a loan amount to a sum that a buyer can afford given their circumstances.  This helps the homeowner and hurts the lender.  You can see why this was fought against so hard.  Lenders want to dump toxic mortgages, which they made in abject greed, on to the government so they don’t have to deal with their actions.  This proposals opens the door to making lenders more accountable for their actions.  It also requires then to own a part of their mistake.

Not only is this a historic election but one that will test the new incoming President.  Unfortunately given the tone of the campaign many of these issues were drowned out.  But when you look at the actual numbers and details it is clear who has the better plan.

Senator Obama will have my vote on Tuesday.

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