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Obama, McCain wary about financial bailout

Democrat Barack Obama and GOP White House rival John McCain demanded changes in the Bush administration's plan.
Image: John McCain and Barack Obama
John McCain and Barack Obama haven't changed their tax and spending Mandel Ngan and Emmanuel Dunand / AFP-Getty Images
/ Source: The Associated Press

Presidential rivals Barack Obama and John McCain warily addressed the nation's financial crisis and a proposed $700 billion response Tuesday, demanding changes in the Bush administration's plan without specifying exactly what would trigger their outright opposition.

The financial meltdown is bedeviling both candidates, who know the Nov. 4 election could turn on voters' sense of who can best keep the country from a deep recession. They have acted cautiously so far, avoiding the intense debate in Congress and offering similar calls for greater oversight and taxpayer protections, which rank among the less controversial criticisms of the plan.

Neither campaign has changed its tax or spending proposals even though the country suddenly faces the prospect of much higher deficits, an overhaul of key financial institutions and the essential nationalization of the country's largest insurance company. Whether they deal with it now or not, economists and analysts say, the next president may find it extremely difficult to keep all his promises because of shifting environment.

As Congress nears a showdown over the proposed $700 billion bailout, Sens. Obama and McCain almost surely will have to take a stand. Obama said he would return to Washington to vote if the outcome is likely to be close.

Many voters opposed
Both men know that many voters dislike the proposal, but that lawmakers who oppose it risk blame if congressional inaction leads to even deeper economic calamities.

Within a few hours of each other, the two nominees faced cameras and reporters Tuesday to amplify on their reactions to the financial mess, reading from texts before taking several questions. Given their stark differences on many issues, their proposed changes to the Bush plan were remarkably similar.

Both called for greater oversight; for ensuring that taxpayers benefit if repackaged loans are sold at a profit or the bailed-out companies recover; and for limiting the pay of executives at firms covered by the bailout.

McCain, the Republican, called for putting the proposals online for the public to see. Obama, the Democrat, called for helping homeowners in danger of foreclosure. He also renewed his call for a stimulus package of tax cuts, which McCain has opposed.

Both men sidestepped questions on which of their demands were nonnegotiable, or "dealbreakers."

Neither McCain nor Obama has modified his tax and spending proposals despite a dramatically changed financial landscape.

Obama says tax cuts necessary
Obama said his proposed middle-class tax cuts remain "absolutely necessary." He repeated his assertion that he has found ways to pay for his proposed boosts to subsidies for health care, education, retirement savings, renewable energy and other priorities, and he said they were ways that would not be affected by the bailout.

On Monday he had suggested he might delay implementing some lower-priority spending plans. The furthest he went Tuesday was: "It would be irresponsible to say I am not going to take into account what things look like" if he assumes office in January.

McCain says he still plans to extend Bush's tax cuts for high-income Americans, even though the proposed bailout would add hundreds of billions of dollars to the federal deficit. He also favors increased federal spending for nuclear power and control of greenhouse gases.

McCain's agenda is built "around policies to create jobs in America and get the economy going," said his top financial adviser, Doug Holtz-Eakin. "The recent budget news has made clear that the challenge is greater, and the importance magnified. But it does not undermine the soundness of the overall strategy."

Next president will face challenge
Keeping these promises won't be easy for whoever wins, say several economists familiar with Congress and the White House.

Although the financial landscape of early 2009 cannot be fully known, it's highly likely that it will "crowd out tax changes and other changes" that Obama and McCain are promising, said Bill Gale, the chief economist at the Brookings Institution. Assuming Congress approves a bailout of about $700 billion, he said, there will be "less money around to play with," and "only a limited amount of attention they can pay" to other priorities, including health care, Social Security, foreign policy and fighting terrorism.

Vincent Reinhart, a resident scholar at the American Enterprise Institute and former director of monetary policy at the Federal Reserve, agreed.

"Their ambitions are going to have to be tempered by the incomplete work" of cleaning up the mess on Wall Street, Reinhart said. There will be "less scope for tax cuts and spending increases," he said. .