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What they'll do to your tax bill

Discussion in 'Political Zone' started by Heisenberg, Jun 12, 2008.

  1. Heisenberg

    Heisenberg Pow! Pow!

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    What they'll do to your tax bill
    McCain and Obama want to change the bottom-line effects of the tax code. Here's a dollars-and-cents breakdown of what their plans could mean for you.
    By Jeanne Sahadi, CNNMoney.com senior writer
    Last Updated: June 11, 2008: 3:59 PM EDT

    NEW YORK (CNNMoney.com) -- John McCain and Barack Obama have starkly different philosophies about tax policy - how to raise the revenue needed to support government programs, spur growth and ensure economic fairness.

    But voters really want to know one thing: How would the presidential candidates' views trickle down to their tax bills? A report released Wednesday by a nonpartisan policy group in Washington, D.C., takes a big first step toward answering that question.

    According to the Tax Policy Center's findings, the common assumptions most people make about the plans of McCain, the presumptive Republican nominee, and Obama, the Democrats' pick, are not wildly off-base.

    McCain: The average taxpayer in every income group would see a lower tax bill, but high-income taxpayers would benefit more than everyone else.

    Obama: High-income taxpayers would pay more in taxes, while everyone else's tax bill would be reduced. Those who benefit the most - in terms of reducing their taxes as a percentage of after-tax income - are in the lowest income groups.

    Under both plans, all American taxpayers could pay a price for their tax cuts: a bigger deficit. The Tax Policy Center estimates that over 10 years, McCain's tax proposals could increase the national debt by as much as $4.5 trillion with interest, while Obama's could add as much as $3.3 trillion.

    The reason: neither plan would raise the amount of revenue expected under current tax policy - which assumes all the 2001 and 2003 tax cuts expire by 2011. And neither plan would raise enough to cover expected government costs during those 10 years.

    "Distributionally, they're markedly different. But in terms of their impact on revenue, the two plans are not terribly different," said Roberton Williams, principal research associate at the Tax Policy Center and the former deputy assistant director for tax analysis at the Congressional Budget Office.
    A closer look

    In addition to making the 2001 and 2003 tax cuts permanent, McCain says he would double the exemption for dependents, lower the corporate tax rate, make expensing rules more generous for small businesses and lessen the bite of the estate tax and Alternative Minimum tax.

    The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $1,200. That means their after-tax income would rise by 2%.

    But those in the lowest income groups would only see their after-tax income rise by less than 1% (or between $19 and $319). By contrast, the highest-income households - those with incomes of at least $603,000 - would see a boost in after-tax income of 3.4%, or more than $40,000.

    Obama's plan would keep the 2001 and 2003 tax cuts in place for everyone except those making more than roughly $250,000, and he would increase the capital gains tax.

    Obama would also introduce new tax breaks for lower and middle-income groups. Such breaks include expanding the earned income tax credit, giving those making less than $150,000 a $500 tax credit per person on the first $8,100 in income, giving those making under $75,000 a 50% federal match on the first $1,000 of savings, and exempting seniors making less than $50,000 from having to pay income tax.

    Like McCain, Obama would lessen the bite of the estate tax and the Alternative Minimum Tax, but to a lesser degree.

    The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $160 under Obama's plan. That means their after-tax income would rise by 0.3%.

    But those in the lowest-income groups would enjoy the biggest after-tax income rise as a percentage of income - between 2.4% and 5.5% (worth between $567 and $1,042). By contrast, the highest-income households - those with at least $603,000 in income - would see a dramatic decline in their after-tax income - a drop of 8.7%, or $116,000.
    The campaigns respond

    Jason Furman, a newly appointed senior economic adviser to Obama, said his preliminary response is that the report's findings bear out what Obama's campaign has been saying: that he's for the middle class.

    "Middle-class families get tax cuts that are three times larger from Obama than from McCain," Furman said. "And the McCain plan gives nearly one-quarter of its benefits to households making more than $2.8 million annually - the top 0.1%."

    Douglas Holtz-Eakin, senior economic adviser to McCain, noted that the report does not take into account the spending reforms - such as eliminating earmarks - that are central to McCain's strategy to support tax relief and help reduce the deficit.

    One of the center's co-directors, William Gale, conceded in a conference call that "if McCain succeeds (in achieving his proposed spending cuts), the fiscal cost of his plan does go down."

    But spending cuts can be politically difficult to achieve, said Len Burman, the Tax Policy Center's director.

    Holtz-Eakin characterized McCain's plan as one geared toward "reshaping federal bureaucracies and protecting taxpayers' money. [His] plan is based on kicking down doors in Washington, and delivering tax dollars back to the American taxpayers who are struggling with record gas prices, soaring food costs and a down economy."
    Not the final word

    Williams said the Tax Policy Center analysis should be viewed as a work in progress. Researchers plan to update it as they get more information about the plans from the campaigns and if the candidates introduce new tax policies between now and Election Day.

    The center will also incorporate the tax elements of McCain's and Obama's health care proposals when they update their findings.

    How the candidates' tax plans would affect economic growth is an open question. "It depends on how the deficits are closed," Burman said.

    Tax studies have shown that when tax cuts are deficit funded and they're paid for by raising taxes in the future, "the economy is worse off than if you didn't cut at all," Burman said.
  2. Heisenberg

    Heisenberg Pow! Pow!

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    Little chart from the article which is in text and doesn't post well:

  3. AtlCB

    AtlCB Active Member

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    These tax plans would be fine if they came with a corresponding decrease in government spending. Three big causes of the poor economy are energy prices, the rapidly increasing national debt, and a declining government education system. I haven't heard an acceptable plan from either Obama or McCain to fix these problems.
  4. burmafrd

    burmafrd Well-Known Member

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    Thats always beenthe problem- you cannot get real spending cuts through congress.
  5. Rackat

    Rackat Active Member

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    Cause and effect:

    When I have more disposable income, I spend more money which helps the economy.

    When I have less disposable income, I spend less money which hurts the economy.

    Point: McCain

    The more money I EARN the more money the Democrat/Socialists want to take away and re-distribute. Effect: I don't care to make more money, thus I have less disposable income, thus the economy suffers because I am not spending money.

    The less money I EARN the more money I get handed to me by those that are actually EARNING it via re-distribution of tax money. Effect: Why the heck should I get off my lazy backside? The government will take care of me.

    Point: McCain

    By the way, I thought trickle down theory was debunked by the liberals?

    Things that make you go hmmmmmmm.

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