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.
Capital Gains
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.
Article comments
— go to most recent comments1 - Cindy D
Mark,
You haven't said anything about McCain's taxing health care premiums. This is a very important point to examine.
McCain has proposed new health insurance tax credits, which his campaign estimates to cost $3.6 trillion over the decade. He says he pays for it by taxing workers’ health benefits, which are largely tax-free today. McCain aides say the plan has no net cost and left it out of their budget plan.
McCain’s numbers add up only by raising taxes on middle-class families. To raise $3.6 trillion by taxing health benefits, you need both income and payroll taxes. But that means an $1,100 tax increase on a typical married couple earning $60,000 in 2013.
Alternatively, McCain could avoid tax increases by applying only income taxes " but not payroll taxes " to health benefits. And this is what his spokesman told the Daily Tax Report he does. But income taxes alone fall $1.3 trillion short of paying for his tax credits.
McCain aides say they pay for their health care plan without raising middle-class taxes, but that’s not possible. So which is it? Do they raise taxes on ordinary families by more than a thousand dollars or add $1.3 trillion to the deficit? It may be the biggest unanswered question in the candidates’ fiscal policies.
2 - Phillip Winn
Pretty nice writeup, Mark. I agree that this is really the age-old dispute over a liberal vs conservative approach to taxation.
Sadly, I doubt this will ever be truly resolved, but it's interesting to see things lurch and back and forth somewhat with successive administrations.
3 - Cindy D
Mark,
Could you elaborate on this point? Or rephrase it? I want to be sure I understand what you mean.
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.
As far as what constitutes a small business, that is defined by the Small Business Act:
What is Small Business
Table of Small Business Size Standards
4 - Mark Kalriess
Thanks for all the comments everyone.
I really tried to concentrate the article on just the tax cut proposals. I didn't want to get into either healthcare plan at all, because then it's a whole different article about the comparison of economic plans as a whole.
Cindy,
I don't quite understand the issue, but Obama has said he would subject a payroll tax to wages over $250,000. He also wants to raise the tax on individual income over $250,000. So if a small business owner paid himself over $250,00 he could conceivably see a tax hike twice. But like I said don't really know if that's how it works.
5 - capitalist
Ignore Cindy..she is so high on left wing koolaid..she has cannot comprehend that Obama could be wrong on even one issue.
It happens..people get so enamoured with a fake messiah they cant see straight.
6 - Cindy D
Another thing that I take into consideration is how each candidates tax cuts are going to be paid for. What effect will they have on the deficit? And does their plan pay any attention to that.
Both candidate's plans would result in increases in the deficit. Obama states that his increases in spending would be balanced by decreases in other areas, like the Iraq war for one. McCain doesn't address the fact that his health care plan needs to be paid for. He also claims to be able to balance the budget by 2013. A claim experts say is dubious. Obama makes no such claim.
SEE NYT Article: Mr. McCain’s plan would appear to result in the biggest jump in the deficit, independent analyses based on Congressional Budget Office figures suggest. A calculation done by the nonpartisan Tax Policy Center in Washington found that his tax and budget plans, if enacted as proposed, would add at least $5.7 trillion to the national debt over the next decade.
How does McCain address this issue? McCain seems to have made some comments that suggest tax raises may be needed. He waffles back and forth with nothing that I can see that explains how he's going to do what he says.
It's great to claim you'll cut people's taxes, it's another thing to borrow money to do that. McCain has changed his tune somewhat on his old "look me in the eye, I will not raise your taxes." His line after that (among other things he said) suggested he will merely go into any "negotiations" and support not raising taxes.
See: Once More, With (a Little Less) Feeling
It is comforting to know that Obama was endorsed by former Clinton senior adviser Rahm Emanuel. The man who suggested Bill Clinton should make balancing the budget a focus. It is also comforting to know Obama seeks out the brightest for advice, like the Clinton team that increased wealth during Clinton's administration, and stock market expert Warren Buffet (who also endorsed Obama).
7 - Lumpy
mccain's proposed tax on health insurance benefits is meaningless because under his proposal companies would stop paying for health insurance and workers would pay their own way with the cost offset by a tax credit. it's a great free narket way to put peiple back in comtrol if their healthcare and put pressure on insurers to be more competitive. it's a brilliant idea that puts people back in control and comes very close to providing national healthcare with a market aproach.
8 - moon
If I read one more fatuous reference to koolaid, I will be forced to sue this site for allowing assault on the sensibility of posters.
9 - Jeremy
I just read a interesting article on why it might not make a lot of sense for either candidate to treat small businesses differently than large businesses.
10 - Cindy D
Lumpy,
Most health care insurance premiums are currently tax-free. That means when your employer pays and you pay through your employer, you don't pay income tax on your premiums.
If you read what I posted in #1 you will see that, you are incorrect. You will find opinions from EXPERTS. I don't make this stuff up. You might even consider investigating the matter on the chance that you may be wrong.
What the analysts say about McCain's health plan:
The cost of insurance could go down for businesses with mainly younger, healthier workers, but companies with older or sicker workers would see costs rise or may not be able to find coverage at all, according to an Urban Institute analysis.
Healthy individuals would see lower costs, while older or sicker people would see prices rise, says a Congressional Budget Office analysis of a similar 2005 proposal to allow insurers to sell across state lines. About 4.6 million more people would gain coverage by 2013, the Urban Institute and Brookings Institution Tax Policy Center say. The tax credit amount could cover the cost of an individual policy for young and healthy workers but would be unlikely to do so for older or sicker people, the Lewin analysis says.
In other words, it sucks, AND is expensive to the government to boot.
Also, and this is a big also: Insurers would not be required to take people with health problems.
All quotes from here.
11 - Clavos
Most health care insurance premiums are currently tax-free.
Not so, Cindy.
Only if they exceed (along with all your other out-of-pocket medical expenses, including mileage and parking) 7.5% of your AGI, and even then, you can only deduct that part of them that are in excess of 7.5%, so if you had a total of 8%, you can only deduct 0.5%.
From the IRS website:
I'm an expert on this. In 2007, I had (including the premiums) $30K worth of out-of-pocket medical expenses, because of my wife's illness.
12 - Cindy D
Clav, you are talking about medical expenses. I am talking about healthcare premiums through an employer.
In other words, your employer (unless s/he is an idiot) sets up a plan that deducts your portion of your premium from your check PRIOR to the portion that is taxed.
Nothing to do with and no relation to medical expense deductions.
13 - Cindy D
Please ask your employer to be sure they have set up the plan that is necessary to achieve this. Some small business owners do not know about it (unless they use a payroll service).
14 - Cindy D
Yes Clav, you would include your insurance premiums in your total medical expenses. That does not mean you paid taxes on your premiums!
I am sure you are an expert regarding medical expenses.
I am an experienced in what employers need to do with their employee premiums. Are you an employer?
15 - Cindy D
The insurance premiums that are taxed are the ones you get as an individual. That is, you don't buy insurance through a(n) (knowledgeable) employer. There is no hope for you with the current administration. If you have to find your own insurance because your employer has no plan at all. You pay taxes on your premium.
Lovely isn't it? Don't get a benefit? Get fucked twice over.
16 - Clavos
If your employer does that, it's illegal, Cindy.
Read what I quoted from the IRS site. Health insurance premiums paid by you are only deductible if they add up to more than 7.5% of your AGI.
When your employer deducts your portion of your insurance premium from your paycheck, it's deducted after the taxes are calculated. You can then deduct them from your return as I outlined above.
Again from the IRS site cited above:
There's more, but that illustrates my point.
17 - Maurice
Mark,
well written. Thanks for a good article.
18 - Cindy D
Clav,
I AM THE EMPLOYER!!!
It's not my employer. It's ME! And my payroll company has set up the necessary plan to have my employees not pay taxes on their portion of their premium contributions.
I learned about this because we used to use PayChex (for about 10 years) which did not charge taxes on the employee part of the premium but also did not set up the necessary plan that would allow us to make the employee portion non-taxable.
We switched to ADP because they made us aware of this.
19 - Cindy D
"Under current law, the value of employer-provided health benefits is tax-exempt. But when individuals buy insurance on their own, they must pay for it with after-tax dollars. This amounts to a taxpayer subsidy for employer-sponsored insurance."
See this link.
20 - Cindy D
Clav, you need to take the largest payroll companies in the nation and tell THEM they're wrong.
I go by what THEY tell ME.
21 - Clavos
Cindy,
I understand what you're saying now. However, those premiums paid pre-tax are not deductible, and cannot be counted toward a medical expenses deduction on your Schedule A.
22 - Cindy D
Clav,
Thanks for telling me that. I thought they could be deducted. That is good to know.
In case I can ever can afford to pay my employees more, then, I will have them contribute to their insurance again. And that will require I do the same.
This is the first year I will be claiming medical expenses. But, for 3 years I haven't been able to raise my employees pay, so I paid for their share of the insurance instead, which includes mine. Which means my insurance is also wholly paid by the business. So, all of our insurance premiums are a business expense. I know I cannot claim anything there personally.
But, just to confirm, you are saying that if employee A has insurance from my company and she were to pay $25/week and I as employer were to pay $50/week. She could not claim that $25/week in her medical expenses?
23 - Dave Nalle
As I understand it what McCain is proposing is not a deduction but a tax credit, which is significantly different and has a much more profound impact on your taxes.
Currently there is a deduction for health insurance premiums, but all it does is reduce your taxable income by the premiums paid up to a set limit per sperson.
A tax credit is much better than this because rather than reducing taxable income it reduces taxes due directly. That's about a third more real value for the average taxpayer.
Dave
24 - Cindy D
By the way, just to enlighten those of you who do not understand how much "good" insurance actually costs. For a single individual in the lowest plan available in NJ would cost $275 or so/month. That is $3300/year with the lowest cost plan available from ANY carrier. It could leave any of my employees (or me for that matter) in dire financial straights if they ever had a disaster. As it requires very high copays and hospital deductibles and only pays 50% prescription benefits.
I have gone with a plan this year that costs $310/single ($3720/year). It's actually, a little more than twice that for married couple (for some reason). The plan lowers prescription costs. The hospital deductibles are still the same and are outrageously expensive.
So, if McCain said he would give me a tax credit of $2500 and then charge me income tax on my premiums I would have to say, "Go fuck yourself."
25 - Cindy D
Good insurance (insurance that insures you won't be left owing $10-15,000 in hospital charges, and provides you with reasonable prescription coverage, costs in the neighborhood of $7000/year or more for a single even with employer group rates in NJ.
Notice I didn't say Cadillac policies with cosmetic surgery coverage. Just reasonably good insurance.