McCain adds to economic plan

WASHINGTON -- Republican presidential nominee John McCain pitched new tax breaks and other incentives Tuesday to help investors and senior citizens.

Democratic rival Barack Obama's campaign criticized those proposals for being too limited and benefiting the wealthy.

Adding to his previously announced economic plans, McCain proposed to cut the capital gains tax in half, suspend rules that force seniors to sell stocks from 401(k)s or Individual Retirement Accounts (IRAs), and tax withdrawals from those accounts at 10% instead of at varying rates.

On a day when the federal government announced ownership stakes in banks, McCain said he would order the Treasury Department to guarantee all savings accounts for six months.

The Arizona senator also proposed eliminating taxes on unemployment benefits. "It is unclear to me why the government taxes money it has just sent you," he said at a rally in a Philadelphia suburb.

These proposals are on top of McCain's plan to extend President Bush's tax cuts, which are set to expire in 2010.

McCain, sounding a theme he is likely to echo in tonight's third and final presidential debate, told the crowd that Obama is not prepared for the economic challenges facing the nation. "Perhaps never before in history have the American people been asked to risk so much based on so little," he said. Obama did not campaign Tuesday.

Obama's campaign said McCain's targeted tax cuts don't affect nearly enough people, leaving out up to 101 million families and benefiting higher earners. "Sen. McCain also shows how little he understands the economy by offering lower capital gains rates in a year in which people don't have an awful lot of capital gains," said Obama spokesman Bill Burton.

Monday, Obama unveiled plans for tax breaks to businesses that create jobs, tax cuts for individuals and families, and withdrawals without penalties from 401(k)s and IRAs for two years. McCain criticized the plan on retirement savings as "an invitation to capital flight, and therefore to continued instability in the market."

Financial analyst Greg Valliere said the 401(k) dispute may give McCain a "wedge issue" for the debate. On McCain's other proposals, there is "nothing here that's going to turn this election around," said Valliere, chief political strategist with the Stanford Financial Group.

"He's passionate, far more than the cerebral Obama," Valliere said about McCain. "But it's awfully late for a game changer."

McCain developed the package in response to the financial crisis that has produced record drops in the stock market and unprecedented government intervention in frozen credit markets.

"This plan is specifically targeted at those who have been harmed so badly," said McCain adviser Douglas Holtz-Eakin, including "seniors in America, those who are saving for college, for their retirement, homeowners and workers."

Economic analyst Dean Baker said McCain's proposal to guarantee savings accounts is "not a bad idea" if Americans continue to lack confidence in the banking system. He praised the plan to remove taxes on unemployment benefits, saying, "It's not a lot of money, but it's for people who need it." Baker is co-director of the Center For Economic and Policy Research, an independent think tank in Washington.

Baker, who has donated to Obama's campaign, said the problem is that these are "limited tax breaks, and the main beneficiaries will be the wealthy." He said many low-income seniors are in the 10%-15% tax brackets, so creating one rate of 10% for withdrawals from 401(k)s and IRAs helps wealthier people.

Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said the economy probably needs a stimulus right now, but she urged both candidates to re-evaluate their overall budget plans.

"The level of debt we are running up," she said, "could end up undermining some of the stabilizing effects that we're trying to have on the economy."