Obama Team Clarifies Tax Plans

by Leroy Baker, Tax-News.com, New York

15 August 2008

In an op-ed for the Wall Street Journal, the economic team behind Barack Obama has 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.

In an article published in the Thursday edition of the WSJ, Economic Policy Advisor Jason Furman and Senior Economic Advisor Austan Goolsbee argued that Senator Obama is focused on cutting taxes for middle-class families and small businesses, and investing in key areas like health, innovation and education.

In contrast, they said, John McCain offers "what would essentially be a third Bush term," with USD3.4tn of tax cuts over 10 years beyond what President Bush has already proposed, but geared more towards high-income earners.

"The McCain plan would lead to deficits the likes of which we have never seen in this country. It would take money from the middle class and from future generations so that the wealthy can live better today," they warned.

While Obama plans to repeal some of the tax cuts passed under the Bush administration for families earning more than USD250,000 per year, Furman and Goolsbee say that he would leave their tax rates at or below where they were in the 1990s.

The top capital-gains rate for families making more than USD250,000 would return to 20% under an Obama presidency, although his economic team point out that this rate is still almost a third lower than the rate President Reagan set in 1986.

The tax rate on dividends would also be set at 20% for families making more than USD250,000, rather than returning to the ordinary income rate - a rate the Obama campaign claims would be 39% lower than the rate President Bush proposed in his 2001 tax cut.

They also point out that the estate tax (commonly known as the 'death tax') would be effectively repealed under Obama's plans, meaning that 99.7% of estates will fall outside of the estate tax net. The 45% rate would be retained for estates valued at over USD7 million per couple, cutting the number of estates covered by the tax by 84% relative to 2000, it is posited.

Furman and Goolsbee contend that, contrary to criticism from the right, taxes will only go up for the top 1% of US households, or those with an average annual income of USD1.6mn.

"In contrast, Sen. McCain's tax plan largely leaves the middle class behind," they wrote.

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