As we get closer to the election, more and more people are talking about it, and specifically the candidate’s tax plans. Sadly, I believe the vast majority of people complaining about one plan or the other have never actually read the either candidate’s proposal. I’m getting a little sick of “Obama wants to destroy America’s economy” and “McCain is going to steal from the poor and give to the rich” MySpace and Facebook posts. So I thought it might be helpful to present a comparison of the two tax plans. I’m going to use information I read in Senator John McCain’s plan and Senator Barack Obama’s plan. I will also use New York Times’ helpful issue comparison. I’ll try to present just the facts, and let you make up your mind.
Tax Cuts for Individuals
Senator Obama wants to immediately cut taxes for households making less than $250,000 a year. He proposes $500 for individuals and $1000 for families. He has a number of other tax cuts and credits he wants to implement. He wants to eliminate all tax for seniors making less than $50,000. He wants to offer a 10% tax credit on mortgage interest to those who do not itemize. He wants to offer a $4000 tuition expense tax credit. Obama also wants to simplify taxes, so taxpayers don’t have to pay for tax-preparation. Senator McCain wants to increase the exemption for dependents $500 per year until it is up to $7000 a dependent in 2016. He also proposes an insurance tax credit; $5000 per family and $2500 per individual.
For those in the highest income brackets, Obama wants to rescind the Bush tax cuts for households earning more than $250,000. He would return the top two income tax brackets to 35% and 39.6%. Senator McCain wants those tax cuts to be permanent, and to keep the top tax rate at 35%. He also wants to get rid of the Alternative Minimum Tax.
Obama wants to increase the capital gains tax from 15% to 20% for households making more than $250,000. McCain supports reducing the tax to 7.5 percent for two years, but leaving it at 15% overall.
Business Tax Cuts
For small business Obama’s plan is to remove capital gains tax on start up and small businesses. He wants to give businesses a $3000 tax credit for each new employee hired in 2009 and 2010. Through the end of 2009 Obama proposes allowing small businesses to write off investments up to $250,000. Obama also wants to offer a refundable tax credit of up to 50% on insurance premiums paid by employers for their employees. McCain supports allowing first year deducting of equipment and technology investment.
Corporate Tax Cuts
For corporate tax rates Obama says he wants to close “corporate loopholes” before considering a cut. He wants to reward those corporations who create more American jobs with tax cuts. He also pledges to “eliminate special tax breaks for gas and oil companies.” McCain wants to cut the corporate rate from 35% to 25% by 2015.
Additional McCain Cuts
There are additional tax cuts McCain wants to make. He wants to ban Internet and new cellphone taxes. He wants to establish a permanent tax credit equal to 10% of wages for research and development. McCain also wants to make it harder to raise taxes by requiring a 3/5ths vote in Congress.
Reading Into the Plans
There are a few things that may not be immediately obvious looking at both of these plans. Obama does not define what amount of income a company needs to make to be considered a small business. A lot of people are wrongly thinking that the tax will be raised on small businesses making more than $250,000 a year. They may be confusing two things. One is the individual tax rate hike he is proposing for those who make over $250,000 or his support of allowing wages above $250,000 to be subject to a payroll tax. I’m not sure exactly what that means but it’s possible that under his plan small business owners who pay themselves over $250,000 a year will be subject to a tax increase twice. His plan is unclear on the tax rates of small businesses that make over $250,000 a year, and whether they would be eligible for any or all of his proposed tax credits.
For McCain he does not actually promise any tax cuts for the middle class, just tax credits and an increase in the exemption amount.
Paying for the Cuts
The total cost of McCain’s plan is $352.5 Billion. The total cost of Obama’s plan is $175 Billion. McCain plans to pay for the tax cuts by eliminating earmarks, implementing a one year spending freeze, and overhauling Social Security and Medicare. Excluded from the spending freeze would be veteran’s benefits and defense. McCain also promises to review all government programs and then “modernize, streamline, consolidate, re-prioritize, and where needed terminate individual programs.“ Obama plans to pay for the tax cuts by reduced spending. Specific examples include ending the war in Iraq, limiting payments to high income farmers and Medicare HMO’s, and ending no-bid contracts.
It is one of the classic democratic versus republican debates. The Republican wants to cut taxes for businesses, which makes its easier to do business, which creates more jobs, which is better for everyone. This is sometimes referred to as the “trickle-down” effect. The Democrat wants to cut taxes for the middle-class and regulate business more, which creates more people spending money, which will create more jobs. This may be referred to as the “share the wealth” effect. Personally, I can’t say which is a more valid approach, and don’t think we’d find out unless we had two parallel Americas running at the same time. It’s an argument that’s been going on for years and isn’t going to stop after this election.
I just hope people can see past partisanship and realize that both candidates want to help America and make it stronger economically. They are aiming for the same goal; they just want to take different paths to it. As voters, we should know what they are proposing, and not just trust what someone else tells us about their economic plans. Go find out for yourself so you can make an informed decision on November 4th.Powered by Sidelines