Make more than $250,000 a year? Watch out. Barack Obama wants to raise your income taxes. Social Security taxes, too.
Run a corporation? Lucky you. John McCain wants to cut your business taxes.
Those positions illustrate pieces of two vastly different approaches to the economy, an issue at the forefront of voters’ minds given that the country is teetering on the brink of — if not already in — a recession as gas prices soar and layoffs rise amid a credit crisis and a housing slump.
Obama, the Democrat, seemingly has a traditional liberal outlook of taxing the rich more while having the government help people of more modest means through tax breaks. McCain, the Republican, advocates a classic conservative vision of cutting taxes — many geared toward businesses — to promote competition within a free-market system.
Neither plan is cheap.
The Tax Policy Center, a nonpartisan joint project of the Brookings Institution and the Urban Institute, gives a preliminary estimate that over the next decade, McCain’s tax proposals would reduce federal revenues $3.7 trillion while Obama’s cuts would amount to $2.7 trillion.
The center said the cuts would slice roughly 10 percent and 7 percent, respectively, of the federal revenues scheduled for collection under current law. But the center’s estimate — seemingly the first nonpartisan comprehensive comparison of the plans — is incomplete because it doesn’t account for health care tax proposals or, at least in McCain’s case, consider how proposals to slash spending would offset some costs.
A crusader against wasteful spending, McCain asserts that he will veto bills that are too costly and cut the federal budget enough to make up for the costs of tax cuts and other proposals, although he has yet to show he can save enough to do it. At the same time, the Republican says that Congress must continue to fund an Iraq war that already has cost more than $500 billion.
Obama, in turn, has proposed billions of dollars in spending to create jobs and pad government programs aimed at helping the less fortunate. He has said that the money will come from ending the Iraq war, slicing tax breaks for corporations, and raising taxes on high-income earners, efforts he says are intended to shift more of the tax burden to wealthy Americans.
The two candidates have been haggling over the economy for more than a week now and seem to agree only on one point when it comes to it — that they disagree on just about every other point.
"On tax policy, health care reform, trade, government spending, and a long list of other issues, we offer very different choices to the American people," McCain says at every turn.
Concurs Obama: "When it comes to the economy, John McCain and I have a fundamentally different vision of where to take the country."
Major changes to the tax code are at the heart of both candidates’ sweeping economic plans, given that most cuts enacted since President Bush took office expire at the end of 2010 and the alternative minimum tax (AMT) is poised to hit much of the middle class — two years into the next president’s first term.
In 2001 and 2003 to jump-start a lackluster economy, Bush proposed and Congress passed a series of tax cuts — including rate cuts for most taxpayers, increasing to $1,000 the per-child tax credit, relief from the so-called marriage penalty and estate tax cuts. The AMT was enacted in 1969 to make sure the wealthy paid at least some tax, but it now also threatens about 20 million additional taxpayers — many in the middle class — with levies averaging $2,000 if Congress doesn’t annually renew a so-called patch to fix the problem.
Making permanent Bush’s tax cuts and making sure the AMT keeps pace with inflation would have a direct cost of $3.6 trillion over the next 10 years, according to the Joint Committee on Taxation and Congressional Budget Office estimates, with government borrowing costs rising more than $800 million over the same period.
McCain, a four-term Arizona senator, twice voted against Bush’s tax cuts, probably the significant domestic accomplishment of his presidency, but now embraces them and wants to permanently extend them for low-income and high-income people alike. He also long has said he would eliminate the AMT, and while some middle-income taxpayers would benefit, so would the wealthy, who no longer would have to pay it.
Obama, the first-term Illinois senator, wasn’t in the Senate when they first passed, but he’s willing to go along with permanently extending them except for their chief beneficiaries, the rich. Those who make more than $250,000 a year would see their taxes increase; Bush’s tax cuts for them would be rolled back.
In the vein of taxing the rich more, Obama also supports making some higher wage-earners pay Social Security taxes on more of their income. He has called for higher payroll taxes on wage-earners making more than $250,000 annually, a step that would affect the wealthiest 3 percent of Americans.
The 6.2 percent payroll tax is now applied to all wages up to $102,000 a year, which covers the entire amount for most Americans. Under Obama’s plan, the tax would not apply to wages between that amount and $250,000. But Obama has said all annual salaries above the quarter-million-dollar amount would be taxed under his plan.
Conversely, McCain has ruled out higher payroll taxes for now — an adviser says that McCain would not consider an increase "under any imaginable circumstance" — but the Republican has said he would consider "almost anything" as part of a compromise to save the senior citizens’ program.
Both want to slice the estate tax, McCain more so than Obama.
The estate tax is phasing out and is completely eliminated for 2010, but it snaps back to 2001 levels — a 55 percent top rate with the first $675,000 exempt — at the end of that year. McCain wants a 15 percent rate, and a $5 million exemption, while Obama advocates a 45 percent rate and a $3.5 million exemption.
Overall, the Tax Policy Center said people with very high incomes would benefit the most under McCain’s proposal, while low- and middle-income taxpayers would see larger tax breaks under Obama’s plan and wealthy taxpayers would see their taxes increase.
Seeking to spur growth, McCain proposes cutting the maximum corporate income tax rate from 35 percent to 25 percent, and he would allow businesses to immediately deduct the full cost of capital business equipment in one swoop, instead of gradually over several years.
McCain also wants to increase the $3,500 income-tax exemption for dependents by $500 each year beginning in 2010 until it reaches $7,000.
Among Obama’s other proposals: raising the tax on capital gains and qualified dividends. However, Obama has raised the possibility of deferring some of his tax hikes on the wealthy given the ailing economy.
To help others, Obama has offered a series of tax breaks, including eliminating the income tax for senior citizens who make less than $50,000 a year and giving a $1,000 income tax credit for families with income of between $8,000 and $75,000; individuals would receive half that amount. Obama also proposes a universal mortgage credit that would allow people who don’t itemize their taxes to be eligible for a 10 percent tax credit of their mortgage interest up to $800.