Is Financial Change on the Horizon? Spotlight on the 2008 Presidential Candidates’ Tax Plans
Tax policy has received plenty of campaign press, but it really will be front and center in January when the new president begins shaping his domestic policy agenda. With nearly all of the tax cuts enacted since 2001 set to expire at the end of 2010, both presidential candidates, Senator John McCain and Senator Barack Obama, have proposed major changes to our national tax policy. However, sometimes it’s difficult for voters to separate the facts from campaign rhetoric and partisan bickering. I’ve created the following chart to assist you in your analysis:
|The 2001 and 2003 Tax Cuts||Permanently extend the 2001 and 2003 tax cuts.||Extend permanently provisions primarily affecting taxpayers with incomes under $250,000. Repeal cuts in top two marginal income brackets ahead of 2010 expiration.|
|Capital Gains||Cut tax on long-term capital gains to 7.5% for 2009 and 2010, 15% thereafter. Raise amount of capital losses that can be used to offset ordinary income to $15,000 from $3,000.||Increase the maximum rate on capital gains to 20 percent, possibly to 25 percent; eliminate capital gains taxes for small businesses.|
|Dividend Tax||Keep top tax rate at 15 percent.||Raise top tax rate from 15 percent, but not above pre-2001 levels.|
|Individual Income Tax||Top federal income tax rate: 35 percent. Eliminate income taxes on unemployment benefits. Lower the tax rate on money seniors withdraw from IRAs & 401(k)s to 10% for first $50,000 in 2009 and 2010. Suspend tax rules that force seniors to sell off their retirement accounts in the midst of the crisis.||Top federal income tax rate: 39.6 percent. Eliminate income taxes on unemployment benefits. Suspend tax rules that force seniors to sell off their retirement accounts in the midst of the crisis.|
|Corporate Income Tax||Decrease tax from 35 to 25 percent.||Keep tax at 35 percent. $3,000 employer tax credit for domestic hire.|
|Alternative Minimum Tax (AMT)||Extend the AMT patch—legislation passed every year or two to prevent the alternative minimum tax from applying to a vastly increased number of taxpayers.||Extend the AMT patch—legislation passed every year or two to prevent the alternative minimum tax from applying to a vastly increased number of taxpayers.|
|Estate Tax||Increase the estate tax exemption and reduce the estate tax rate compared with current law in 2011 and beyond. However, Senator McCain favors increasing the tax cut to a greater degree than Senator Obama does.||Increase the estate tax exemption and reduce the estate tax rate compared with current law in 2011 and beyond.|
If you’re interested in more detail, I recently read a report published by the nonpartisan Tax Policy Center, An Updated Analysis of the 2008 Presidential Candidates’ Tax Plans by Leonard E. Burman, Surachai Khitatrakun, Greg Leiserson, Jeff Rohaly, Eric Toder, and Roberton Williams that does an admirable job of outlining each candidate’s major tax proposals and speculating on the implications of their policies.
Notably, the two candidates’ tax plans would have sharply different distributional effects. Senator McCain’s tax cuts would benefit primarily those with the highest incomes, while fewer households at the bottom of the income distribution would get tax cuts. Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. Unlike Senator McCain, Senator Obama’s largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise significantly.
The Tax Policy Center also offers an online guide, How to Find Tables for TPC’s Analysis of the Candidates’ Tax Plans, which includes numerous tables and Excel spreadsheets illustrating the effects of the presidential candidates’ tax plans on revenues, distribution of tax changes as well as changes in individual and corporate taxes for a variety of specific tax situations.
And don’t forget to vote on Tuesday, November 4th.