Brass Tacks: The Tax Plan Details
Presidential Candidates Offer New Tax Policies
With the Democrat and Republican Conventions nominating their Presidential and Vice-Presidential candidates, the fall political season will soon be in full swing. The campaigns of both Senators Obama and McCain have released proposals that state their positions on taxes.
While the tax proposals are inevitably changing as the campaigns progress, there is a clear difference in their underlying perspectives. It is helpful to examine the “What Will I Pay” question by comparing the two plans. The Urban-Brookings Tax Policy Center has attempted to compare the tax liability for individuals based on the Obama and McCain proposals.
Determining personal taxes is a somewhat complicated issue, but the nonpartisan Tax Policy Center has attempted to compare the result if the major proposals of both candidates were implemented. One of the published reports compares the Obama and McCain tax plans for a family of two parents and two dependent children.
Assume that this family of four is called USA Family. With an income of $50,000, the TPC estimates that USA Family saves $647 under the Obama Plan and $721 with the McCain plan.
If USA Family’s income is $100,000, then the savings under Sen. Obama’s plan is $1,883 and for the McCain plan $3,085. With USA Family income of $150,000, the Obama tax cut is $3,393 and the McCain plan is the same.
If USA Family has still higher income, the Obama plan involves a tax increase. The $500,000 income USA Family pays $6,727 more in tax under the Obama plan and has no change under the McCain plan. Finally, a USA Family with income of $1 million would pay an added $42,715 under the Obama plan and be unchanged under the McCain plan.
Editor’s Note: Your editor and this organization [Salvation Army] take no position on the presidential candidates or the fall election. This information on tax proposals of both parties is offered as an educational service to our friends. The following two sections describe in more detail the specifics of the Obama and the McCain proposals.
Presidential Candidate Barack Obama’s Proposals
Middle Class Tax Cuts – The general goal of the Obama plan is to cut taxes for the middle class and raise taxes for higher-income persons. For individuals age 65 and over with incomes under $50,000, he proposes no income taxes.
Tax Rates – The personal tax rates for persons with $250,000 or more of income would be restored to the 1995 level of 39.6%. The corporate tax rate would remain at 35%.
Estate Tax Rate – The estate tax rate of 45% would be continued with the 2009 exemption of $3.5 million per person.
Capital Gains Tax – The probable capital gains tax rate will be 20% (various rates have been discussed).
Net Tax Cut – The overall plan is a net tax cut. The increased taxes on higher income persons will be offset by tax credits for lower income workers, increased college tax credits and increased childcare tax credits.
Sen. Obama stated, “I will cut taxes – cut taxes – for 95% of all working families. Because in an economy like this, the last thing we should do is raise taxes on the middle-class.”
Presidential Candidate John McCain’s Proposals
Tax Cuts – Sen. McCain proposes to continue the tax cuts of 2001 and 2003. The top rate will remain 35% for higher-income persons.
Increase Dependent Deduction – The dependent deduction would increase from the current $3,500 per child level to $7,000 by 2016.
Corporate Rate – The top tax rate on corporations would be reduced to 25%, with a broadening of the corporate tax base.
Alternative Minimum Tax – The AMT patch would be continued and indexed to exclude most Americans from AMT.
Estate Tax – The estate tax exemption would be increased to $5 million per person with a top estate tax rate of 15%.
McCain advisor Carly Fiorini has indicated, “John McCain has a consistent record of cutting taxes. As President, he will fight efforts to increase the current tax rates, and will require a 3/5 majority vote in Congress to raise future taxes.”