Obama's New Tax Proposal

The New York Times reports that Barack Obama has unveiled new economic proposals to help our economy.

One such proposal, emanating from the Obama campaign, according to the NYT is to "allow savers with tax-favored Individual Retirement Accounts and 401(k)'s to withdraw 15 percent of those retirement savings, up to a maximum of $10,000, without paying a tax penalty as the law currently requires for withdrawals before age 59 and a half;"

Is that a good proposal for those that might consider this alternative? In better times, it might be, but if an IRA or 401(k) is invested in stocks or a mutual fund which are no doubt suffering from recent stock market losses, the proposal doesn't look good at all.

This proposal appears to be suggesting that some IRA holders sell at a loss of perhaps as great as 20% (a very conservative estimate as mine is down 35%) to save the 10% tax penalty. Remember, under this proposal one still has to pay income tax at a minimum of 15% and likely higher depending on an individuals tax bracket.

If one were to withdraw $10,000, they would see an automatic loss of a minimum of 20% assuming that the stock market recovers even a part of the the recent losses. Additionally, there will be income tax that must be paid at about another 20%. So the $10,000 withdrawal nets somewhere in the range of $5-7,000 depending on individual circumstances.

Does the Obama campaign really think about what they might be suggesting in an effort to help us? Is this the same type of suggestion that they think will help relieve the current economic mess? With help like this I'll continue to be broke well into the future.

If 100,000 individuals decided to take advantage of this terrible deal, the government would collect $150 million in taxes. While in the context of overall government budgeting that is small potatoes. It nevertheless is taxing.