Last month Obama and McCain's tax plans were compared and analyzed by the non-partisan Tax Policy Center. Everyone discussing the two tax plans
should consider this required reading:
Candidate Tax Plans
Here are some highlights:
There is some common ground between the two plans. Both candidates agree that the elements of the 2001 and 2003 tax cuts primarily affecting those
with incomes below $250,000 should be extended, that the estate tax should be substantially reduced but not repealed, and that the research credit
should be made permanent (though Senator McCain would change the formula by which it is calculated). Both candidates would continue to limit the
number of taxpayers affected by the AMT but would not repeal it.
The Obama plan includes several provisions that do not provide additional tax benefits, but do affect the tax benefits individuals receive and how
they interact with the tax code. An important example is the proposal to mandate automatic enrollment in 401(k) plans and require employers who do not
offer them to establish automatic IRAs. These proposals apply the findings of recent research that shows people are much more likely to contribute to
retirement saving plans if they are automatically enrolled, with an option to opt out, than if they have to make an active decision to participate.
This is from the "behavioral economics" model that's all the rage with economists nowadays. In my opinion, it's exactly the kind of thing
Government should focus on... Making the "right decision" the easiest course of action rather than the most bureaucratic. It changes virtually
nothing, it just puts the emphasis on "opting out" of a private 401K rather than "opting in". How many of us when we were 20somethings "should
have" signed up for a retirement plan but didn't bother with it until we had families to think about? I like this idea a lot.
Obama’s proposals to tax carried interest as ordinary income, limit international corporate tax shelters, improve information reporting, apply the
“economic substance doctrine” to business transactions, and reduce the tax gap could all improve economic efficiency by reducing the incentive to
engage in purely tax-motivated transactions.
This is another important distinction. In the next decades with China breathing down our necks economically, America will need to do more than shift
the wealth around. We'll need to return to our tradition of being a "productive" society. Personally, I think this will be the alternative energy
industry, but whatever it is, motivating corporations to be productive rather than just motivated through tax-loopholes would be a major step in the
right direction. However, the analysis does go on to say how hard this would be in reality because the tax-loopholes are so hard to control. But it's
certainly the right idea.
Bottom line:
If enacted, the Obama and McCain tax plans would have radically different effects on the distribution of tax burdens in the United States. The Obama
tax plan would make the tax system significantly more progressive by providing large tax breaks to those at the bottom of the income scale and raising
taxes significantly on upper-income earners. The McCain tax plan would make the tax system more regressive, even compared with a system in which the
2001–06 tax cuts are 35 made permanent. It would do so by providing relatively little tax relief to those at the bottom of the income scale while
providing huge tax cuts to households at the very top of the income distribution.
The arguments that Obama's tax plan hurts the poor or middle class is wrong. It significantly favors the poor and middle class. Not just with tax
cuts, but with tax incentives like the "Making Work Pay" credit or the "Universal Mortgage" credit. Simply using the argument of "trickle down"
effect to say the poor are hurt by taxes on the rich isn't seeing the whole picture.
However, the argument that Obama's plan will significantly effect those that make over $250,000 a year is accurate. Personally, I think we're at a
place where taxes must be raised on someone. We have an ungodly national debt that has demolished the value of the dollar and led directly to the
increase in gas prices, food, etc... We have to climb out of a hole and we can't do that without raising taxes. Luckily we have a cash-cow on the
horizon that will offset how much taxes need to be raised. Ending the Iraq War will free up billions, but even with that potential windfall, we need
to do something now to free ourselves from the global debt swamp the Bush Admin so unwisely led us into. The earners that benefited most from the
policies that led us to where we are today are the top 3% of earners and Corporations, so I have no problem arguing that they should shoulder the
higher proportion of the hardship it will take to climb out of it.
