Alternative Stimulus Plan

Matthew Hoy
By Matthew Hoy on January 16, 2009

The Republican Study Committee released some bullet points on its alternative to the Democrat's stimulus plan.

Some highlights:

  • An increase in the child tax credit from $1,000 to $5,000.
  • An increase in the deduction for college expenses from $4,000 to $6,000, and in the income threshold at which the deduction can be taken.
  • An end to mandatory IRA withdrawals at age 70 1/2.
  • The plan would also let people of any age draw down their IRA money without taxes or penalties in calendar 2009.
  • Reduction in the top corporate income tax rate from 35 to 25 percent.
  • A 5 percent reduction in the rates of all six federal income tax brackets.
  • Repeal of the alternative minimum tax for individuals.
  • Making the current tax rates on capital gains and dividends permanent, and indexing capital gains to inflation. For example, if you bought an investment in 1980 and sold it today, you would be able to measure the profit in constant dollars, so that you aren't paying taxes on the inflation.
  • A cut in the corporate capital gains tax from 35 percent to the 15 percent that individuals currently pay.

A lot of these sound like really good ideas. The halt on mandatory IRA withdrawals makes sense -- you don't want to force people to take a loss on their retirement income.

The reduction in the corporate tax rate would make it match most of Europe. That could help reduce incentives to outsource jobs overseas.

The one I've got mixed feelings on would be the one that would let people take money out of their IRA without penalties or taxes in 2009. While that could certainly help the economy if people take money out and then spend it; it could backfire if people took the money out solely to pay off debts. In the latter situation, the economy wouldn't be kicking up, but the stock market would continue to slide.

Also, I'm pretty sure if they passed that provision into law, that there wouldn't be a traditional IRA left in America by year's end. Unless I'm missing something, that would be the perfect time to roll your traditional IRA into a Roth IRA.

There's some good ideas here and I hope that President-elect Obama meant it when he said he would entertain all ideas.

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