Obama's Economic Rescue Plan for Middle-Class Americans

Today in Toledo, OH, Senator Obama gives a speech outlining his economic rescue plan to address our financial crisis both in the short- and long-term. It's scheduled for 1:30 pm EST. (Text of the prepared speech here.)

Here's a brief preview of his expected remarks, from the press conference call with Jason Furman, the Obama campaign's chief economic advisor. Remarks in green are excerpted from the text of Obama's speech as prepared for delivery.

According to Furman, representing Obama, there's still a need for immediate action following on Secretary of the Treasury Henry Paulson's moves to inject capital into illiquid banks. Furman says that Obama's proposals have a four-part scope that can be implemented under existing legislation or could be passed in a lame-duck session of Congress prior to the end of the year. These proposals would not eliminate or usurp other Obama-Biden policies they have previously called for, but action on those bigger initiatives would be reserved for 2009 and beyond.

Obama proposes:

1. to jump start job creation with a new jobs tax credit, applicable for 2009-2010. The tax credit would be for companies that create jobs in America, for Americans. This is in contrast to McCain's proposal of across-the-board tax cuts that mainly benefit oil companies. This effort would be in addition to Obama's existing proposal to provide a tax cut for small businesses, invest in infrastructure by rebuilding roads and schools, and to fast-track $25 billion to the auto industry.

And we should fast track the loan guarantees we passed for our auto industry and provide more as needed so that they can build the energy-efficient cars America needs to end our dependence on foreign oil.

2. relief for families. Grant families the ability to withdraw 15% or up to $10,000 penalty free from 401k/IRA in 2008-2009 to supplement their incomes. Temporarily suspend the rules that force retirees to withdraw from 401k funds at 70.5 yrs old. Suspend taxes temporarily on unemployment benefits. Ask Congress to pass Obama's proposed tax cut that would benefit 95% families who make under $250,000/year, so the IRS can send rebate checks out quickly for those who’ve already filed.

Since so many Americans will be struggling to pay the bills over the next year, I propose that we allow every family to withdraw up to 15% from their IRA or 401(k) – up to a maximum of $10,000 – without any fine or penalty throughout 2009.

3. to use the existing Dodd-Frank bill to assist homeowners. Any institution accessing federal funds for homeowner workouts would have to abide by a 90-day foreclosure moratorium to help keep homeowners living in their homes instead of being foreclosed upon immediately. Contrast this with homeowner assistance in McCain's plan, which amends law to give a windfall to banks.

I've already proposed a mortgage tax credit for struggling homeowners worth 10% of the interest you pay on your mortgage and we should move quickly to pass it. We should also change the unfair bankruptcy laws that allow judges to write down your mortgage if you own six or seven homes, but not if you have only one.

4. continue capital injections into banks, and extend broader non-liabilities in banking and lending where necessary. Furman says, "Obama supports Paulson’s plan and wants to see this enacted more aggressively. ...We may need to extend lending facility to local and state governments, to unfreeze markets in other areas to buy auto loans, student loans, and consumer loans." The Treasury can, in addition to buying up mortgage-backed securities, likewise ensure that there's liquidity in consumer credit. The government can and should ensure state and local governments or small businesses can continue to make payroll and pay for essential services.

On Friday, I proposed a Small Business Rescue Plan that would create an emergency lending fund to lend money directly to small businesses that need cash for their payroll or to buy inventory. It's what we did after 9/11, and it allowed us to get low-cost loans out to tens of thousands of small businesses. We'll also make it easier for private lenders to make small business loans by expanding the Small Business Administration's loan guarantee program. By temporarily eliminating fees for borrowers and lenders, we can unlock the credit that small firms need to pay their workers and keep their doors open. And today, I'm also proposing that we maintain the ability of states and local communities that are struggling to maintain basic services without raising taxes to continue to get the credit they need.

A number of questions were addressed to Furman after the press conference call.

Q1: Brazilian newspaper: Does Obama have a name or names for a Secretary of the Treasury in his administration? Would he keep Paulson for a transitional period through early 2009? A: Obama is committed to a Treasury Secretary that will assist him in implementing the above strategies; that said, he is not currently focused on cabinet appts.

Q2: Mother Jones: Obama’s reaction to House effort to jobs creation bill of $61 billion?
A: Obama hasn’t seen the details of House package. It's similar in spirit to what Obama has proposed.

Q3: Detroit News: regarding the automotive industry portion of plan and GM-Chrysler, would Obama step in to prevent liquidation of those two companies?
A: Obama appreciates the seriousness of the troubles in the automotive industry. He believes Congress should fast-track the $25 billion package that was already passed, and it needs to authorize the second $25 billion as soon as possible. This will be crucial to develop new battery technology and otherwise ensure the development and manufacture of fuel-efficient cars in America.

Q4: BusinessWeek: Obama says he approves of Paulson’s capital injections and urges that we move more quickly. Can you give more specifics? As the situation has gotten worse, things that were off the table now on, are there more things that need to be done that were previously off the table?
A: With regard to capital injections, businesses need to be able to conduct business. On Thursday, Sept 8, 2008, before Paulson went to Congress, Obama identified the need to preserve liquidity, provide capital, and protect homeowners. The move to recapitialize banks is one he agrees with, but at this moment Obama will not try to pre-empt the Treasury and its activities under the current administration. Nevertheless, he emphasizes the need to move quickly.

With regard to other steps: 1) if the financial crisis gets worse, Obama foresees the need for a broader set of guarantees in the banking industry. He feels we should be prepared to do so with additional contingency plans. 2) "There's a need to make sure credit problems don’t radiate out to larger economy." For example, Small Business Administration loan guarantee programs would need to be expanded for small businesses.

Q5: Fox News: costs of new proposals? Which can be done with executive authority, which with legislative backing? Comment in light of the past 24-48 hours, when global markets seem to respond to the present stimulus package?
A: Obama's emergency economic plans as of Aug 1 relied on $50 billion to be paid by windfall taxes on oil companies, but it cannot be assumed that oil prices will raise revenue given the fluctuations in oil price. Obama is committed to paying for long-term proposals but in the short term must avoid deep recession. Expiration of the Bush tax cuts and closing corporate tax loopholes can be expected to provide up to $175 billion over the next two years. New legislation is required for job creation, new technology proposals, and reforming bankruptcy code. All other proposals could be covered under existing law. The 90-day moratorium could be built into the conditions financial institutions must adhere to in exchange for access to federal funds.

Q6: Platt: impact of the plan on energy companies and infrastructure?
A: Obama's alternative energy plans would be implemented next year if elected. Immediately, when it comes to relief for families, he would supplement the Leahy Heat Relief Package (LIHEAP) to assist low-income Americans with winter fuel costs.

Q7: USA Today: with regard to state and municipal government borrowing, will Obama call for a lame-duck session?
A: In his overall call for speed to address the financial crisis, the proposals Obama urges Congress to pass may require a lame-duck session. The Fed is buying commercial paper from issuers with restrictions on how to use it. The Fed could issue short-term paper so states and localities in need of money to make payroll before revenues come in can use this. For example, CA will get short-term paper. There are questions among lawyers as to the fine points of law and jurisdiction here. Obama would like to organize a facility to provide this; if it isn't currently legal, then he would use legislative process.

Q8: Marketwatch: Cut taxes for 95% of American families? Can we still afford this?
A: Obama cannot afford to NOT cut taxes for middle-income families. Obama is absolutely committed to this middle class tax cut. (Wonky version, plain English version.) Tax cuts are paid for by rolling back tax cuts on $250k incomes, no loopholes for corporations that send job overseas, funds freed by getting out of war in Iraq quickly and responsibly, etc.

Q9: Slate: with regard to a lame-duck session? Have you spoken to Speaker Pelosi about this?
A: Obama is focused on the presidential campaign. Many of these steps are administrative and fall under existing law, which is why they could be implemented as soon as possible. But no matter what, it will not be possible to solve the existing financial crisis in the remaining 3 weeks before elections.

Cynematic blogs at P i l l o w b o o k.