John McCain has new proposals to soften the blow for Americans rocked by the financial instability of the past few weeks — especially for seniors.  McCain offers both lowered capital-gains taxes and higher deductions for stock losses, both of which will help retirees managing their 401(k) and other investment vehicles for their income.  The lowered capital-gains rate will also help boost re-investment:

Republican presidential nominee John McCain will unveil proposals Tuesday aimed at helping Americans cope with a sharp plunge in the stock market, including tax relief for senior investors.

The proposals, to be outlined by McCain in Pennsylvania, come as the Arizona senator tries to close a gap with Democrat Barack Obama, who leads in national polls and in several key states with three weeks to go until election day on November 4.

McCain economic adviser Doug Holtz-Eakin told Reuters that McCain would outline an estimated $52.5 billion in new proposals.

The cost estimate comes from a static analysis of the various proposals.  We’ve talked about static analysis before; it assumes that tax policy has no effect on the market and therefore doesn’t take into account any economic stimulus or slowdown that results from the policy.  Tax increases therefore overestimate revenues, while tax cuts overestimate revenue shortfalls, and this estimate does the same thing.

McCain will propose the following, from his press release this morning:

  • John McCain Proposes That Withdrawals From Tax-Preferred Accounts – IRAs And 401(k)s – Should Be Taxed At The Lowest Rate – 10 Percent – In 2008 And 2009. This policy will apply to the first $50,000 withdrawn from these accounts each year and will affect the accounts of nearly nine million Americans over the age of 60, permitting them to devote more of their income to retirement needs.
  • John McCain Has Called To Suspend The Tax Rules That Force Seniors To Sell Their Stocks In The Midst Of The Most Grave Financial Crisis Of Our Lifetime. Under current law, Americans with tax-preferred IRA and 401(k) accounts must begin to sell off their equities when they reach age 70½ – unless they continue to work, in which case they must sell when they retire. Forcing seniors to sell at this time guarantees less to live on during retirement and could affect over four million seniors. John McCain believes this should be immediately waived.
  • John McCain Will Not Penalize Those Forced To Sell Off In Today’s Tough Markets. John McCain believes that we should increase the amount of capital losses which can be used in tax years 2008 and 2009 to offset ordinary income from $3,000 to $15,000.
  • John McCain Will Strengthen Incentives To Save, Invest, And Restore The Liquidity Of Markets. John McCain proposes a reduction in the maximum tax rate on long term capital gains to 7.5 percent in 2009 and 2010.

These proposals make a lot of sense, both in the short term and in the long term.  With the turmoil in the markets at the moment, the forced sale of stock from retirement portfolios could be disastrous for retirees.  Raising the capital-loss ceiling to $15,000 will keep the failure from hitting the small investors as hard.  The drop in in the capital-gains tax rate will do the most, though, in encouraging more investment in the economy and discourage people from sheltering capital from the current storm.  That could fuel a boost to the economy that would help buffer us from recession, or at least shorten a recession that has probably already begun.

Team McCain also includes the mortgage purchase strategy they announced during the last debate.  We’ve already covered this, but the release puts a little more meat on the bone:

The McCain Resurgence Plan Would Purchase Mortgages Directly From Homeowners And Mortgage Servicers, And Replace These Mortgages With Manageable, Fixed-Rate Mortgages That Will Keep Families In Their Homes. By purchasing the existing, failing mortgages the McCain resurgence plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.

The McCain Resurgence Plan Would Be Available To Mortgage Holders Who Live In Their Primary Residence And Can Prove Their Creditworthiness At The Time Of The Original Loan. The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner.How The Program Works:

· An American buys a house that is his or her primary residence for $250,000 with a conservative, 20 percent downpayment ($50,000 down).

· His or her community property values fall by 30 percent, leaving him or her with a home worth $175,000 and a mortgage still worth $200,000.

· Under the McCain Plan, their mortgage would be retired, and they would receive a new, FHA guaranteed, 30-year fixed mortgage, at a low interest rate that reflects historical norms and the current market value of his home.

The Direct Cost Of This Plan Would Be About $300 Billion And Will Represent A Portion Of The $700 Billion Provided By Congress In The Recent Financial Market Stabilization Bill. The purchase of mortgages would relieve homeowners of “negative equity” in some homes. By stabilizing mortgages it will likely be possible to avoid some purposes previously assumed needed in that bill.

That would direct much of the funding for the bailout of mortgage-backed securities to the actual homeowners rather than the investors who bought the securities.  That would indirectly stabilize the MBSs while not providing a direct bailout to the speculators who built derivatives on derivatives.  It’s not a great solution — there simply isn’t any “great solution” to be had — but if the bailout exists, it’s not a bad direction in which to take it.  Keeping it limited to primary residences (no investment properties) and only those homeowners who would have qualified for the mortgage under normal lending rules helps weed out the people who took unnecessary risks, while supporting those who got victimized by the government-created housing bubble.

All in all, not bad — a plan designed to fix the economy as well as rescue individuals by lowering the tax burden.  Now McCain needs to communicate just that in his rollout.