McCain To Keep Bush Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

21 April 2008

Republican presidential candidate John McCain will fight to retain tax cuts passed under the Bush administration, seek a cut in America's corporate tax and bring about comprehensive reform of the US tax code if elected to the White House in November, he has announced.

McCain chose to outline his economic and taxation proposals on 15th April - the tax filing deadline - to drive home his message that the US tax and budgetary system is fundamentally broken, and to emphasize his belief that taxes should be "low, simple, and fair."

McCain's promise to maintain income and investment taxes at their current levels represents something of an about turn for the Arizona Senator, given that he opposed the temporary tax cuts pushed through Congress in Bush's first term. He now contends, however, that it is better to fight to keep taxes lower rather than accept Democrat plans for "a crippling tax increase" in 2011.

"Entrepreneurs are at the heart of American innovation, growth and prosperity. Entrepreneurs should not be taxed into submission," McCain's economic plan argues, before going on to add that: "Left to their devices, Democrats will impose a massive USD100bn tax hike, almost USD700 per taxpayer every year."

Another key element of McCain's tax strategy is his proposal to cut the federal rate of corporate tax to 25% from its current level of 35%, in doing so, aligning it with the average corporate tax rate levied in America's main trading partners.

"We currently have the second-highest combined corporate-tax rate in the industrialized world, and it is driving many businesses and the jobs they create overseas," the plan observes.

Under other pro-innovation measures, McCain would seek to ban internet taxes - an issue he has unsuccessfully championed in the Senate - and block new taxes on the use of cellular phones.

He would also establish a permanent tax credit equal to 10% of wages spent on research and development. On this latter point, McCain expects this measure to simplify the tax code, reward activity in the US, and make America more competitive with other countries.

"At a time when our companies need to be more competitive, we need to provide a permanent incentive to innovate, and remove the uncertainty now hanging over businesses as they make R&D investment decisions," he argued.

McCain also plans to improve business incentives by allowing corporations to immediately deduct the cost of equipment investment to provide "an immediate boost to capital expenditures and reward investments in cutting-edge technologies".

There is also a heavy emphasis in McCain's proposals on alleviating the tax burden for middle-class Americans, at the centre of which is his commitment to permanently repeal the Alternative Minimum Tax (AMT).

The AMT was originally conceived in the 1960s to ensure that a little more than a hundred of the wealthiest Americans could not reduce their tax liability to zero through use of various deductions and exemptions, but the law was not indexed to inflation, therefore ensnaring more and more taxpayers each year, and forcing Congress to enact an annual 'patch' to curtail its spread.

"Repealing this onerous tax will save middle class families nearly USD60bn in a single year," McCain's plan claims, adding that a middle class family with children set to pay the AMT will save an average of over USD2,700.

McCain would also double the personal exemption for dependents, and bring about a "permanent and immediate reform" of the estate tax, with the exemption from taxation on estates raised up to USD10mn, and the tax rate cut to 15%.

Perhaps the most interesting aspect of his reform plans however, is the idea for an "alternative new and simpler tax system" which will give taxpayers the choice to calculate their taxes under the current tax code, or use a "vastly less complicated system with two tax rates and a generous standard deduction".

"Americans do not resent paying their rightful share of taxes - what they do resent is being subjected to thousands of pages of needless and often irrational rules and demands from the IRS," McCain's plan states, without elaborating further on the proposals.

It is unclear how much these tax proposals will ultimately cost - some analysts estimate that the price tag runs into the trillions of dollars - and Democrats have dismissed the plan as simply unaffordable. But McCain believes that he can ultimately balance the budget before he leaves office by taking an aggressive approach to unnecessary spending.

If elected, he would call for a one-year hiatus on federal discretionary spending - excluding essential military expenditure - so that a "top-to-bottom review of the effectiveness of federal programs" could be instigated. He also wants to change budgetary rules to make it harder for Congress to add to spending programs and raise taxes.

In addition, he would attack 'wasteful' spending, and seek to prevent lawmakers from inserting narrowly targeted special interest measures into tax and spending bills, known as 'earmarks,' by naming and shaming those that do so.

"John McCain will stop earmarks, pork-barrel spending, and waste. He will veto every pork-laden spending bill and make their authors famous," his plan pledges.

"When he leaves office, he wants to leave a budget that stays balanced after he is gone, and can weather the occasional downturn and unexpected contingency," it adds.

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