A recent examination of the tax proposals of the presumptive presidential candidates
Senators Barack Obama and John McCain by the Tax Foundation finds the nominees
taking starkly different approaches to taxation to achieve their economic goals.
With rising fuel prices, the housing market crisis and health care funding
still critical issues, the economy has figured prominently in each candidate's
campaign in the new presidential economic cycle. However, Robert Carroll, Vice
President for Economic Policy at the Tax Foundation, the non-partisan taxation
think tank, observes that the candidates have significantly different tax policies
that address these issues.
"Senator Obama has included a set of carefully targeted tax proposals
that narrowly aim benefits to specific types of taxpayers, while Senator McCain
provides broad tax relief with benefits that are indirect," noted Carroll.
"In both cases, tax relief is provided to the vast majority of the electorate."
Carroll's examination of the competing tax plans, which references the cost
of each as estimated by the Urban-Brookings Tax Policy Center, shows that McCain
only has two proposals that directly affect individuals: the expansion of the
dependent exemption and a new health care tax credit. On the other hand, Obama
provides seven proposals for individuals that target housing, education, child
care, and low-income work.
There are also wide differences in their proposals on business taxation. While
Obama proposes a small business health tax credit as well as permanent extension
and expansion of the research and experimentation credit, McCain's proposals
are much more expansive, including a reduction in the corporate tax rate from
35% to 25% and a write-off of business investment in equipment. Furthermore,
McCain's lower corporate tax rate recognizes that the United States' business
tax system, with the second-highest corporate tax rate among industrialized
nations, may be becoming uncompetitive in a global marketplace.
Carroll explains that, in simple terms, Obama focuses on redistribution and
McCain focuses on improving economic incentives.
"Senator Obama provides tax relief directly to individuals, without making
major changes in how the tax system interacts with or affects individual and
business decision making," explained Carroll. "Senator McCain provides
broad tax relief and channels most of it to businesses, with the notion that
the best way to help workers is to encourage investment and ensure that the
US remains competitive in the global marketplace."
Meanwhile, the opinion pages of the Wall Street Journal continue to provide
a battle ground in the war of words between the the two camps. Writing in the
WSJ on Tuesday, Peter Ferrara, director of entitlement and budget policy for
the Institute for Policy Innovation who served as an advisor under Presidents
Ronald Reagan and George W. Bush, warned that Obama promises to raise marginal
rates for just about every federal tax, and he dubbed his plan "The New
Tax Welfare."
"The details released by his campaign last week confirm what a President
Obama has in mind for our most productive citizens," he wrote. "The
top individual income tax rate, for example, would be increased by 13%, to 39.6%;
the next-highest rate would be raised to 36%. The top rates on capital gains
and dividends would rise by a third, to 20%."
Ferrara also said that Obama would raise social security taxes by 16% to 31%
for families making over USD250,000 a year, make permanent the estate tax with
a top rate of 45% and impose new taxes on business, such as a new payroll tax
to fund his health insurance plan.
"He also contemplates several increases in the corporate income tax, including
a new so-called windfall profits tax on oil companies," Ferrara observed.
In their own WSJ op-ed last week, Obama's economic team sought to correct "distortions
and misinformation" about the Democratic presidential nominee's tax proposals,
while at the same time discrediting the tax plans of Republican opponent John
McCain.
Jason Furman and Austan Goolsbee, Economic Policy Advisor and Senior Economic
Advisor respectively in Obama's campaign team, dismissed suggestions that taxes
will go up across the board under an Obama presidency, claiming that only the
top 1% of US households, or those with an average annual income of USD1.6mn,
will see higher taxes.
McCain, on the other hand, would take money from the middle class and from
future generations "so that the wealthy can live better today," they
contend.
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