Think Tank Issues Critical Analysis Of Obama And McCain's Tax Plans

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

24 July 2008

The tax proposals laid out by presidential candidates, Senators Barack Obama (D - Illinois.) and John McCain (R - Arizona), would increase the level of America's national debt and could add complexity to the US tax code, according to a new report.

While both candidates claim that their tax proposals are fiscally responsible and that their tax cuts are offset by either spending cuts or tax hikes elsewhere, an analysis of their respective tax plans by the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, begs to differ, and has concluded that the debt would likely continue to rise, as it has over the past eight years.

"Although both candidates have at times stressed fiscal responsibility, their specific non-health tax proposals would reduce tax revenues by an estimated USD4.2tn (McCain) and USD2.8tn (Obama) over the next 10 years," the Center stated.

Both candidates have pledged to extend temporary tax cuts passed under President Bush, which are approaching their expiry dates, although Obama will only continue those that benefit low- and middle-income taxpayers.

Obama's tax plans are also far more re-distributive than McCain's. In announcing his economic plan last year, Obama claimed that as President, he would relieve the middle class tax burden by USD85bn, giving 150 million Americans a tax cut of up to USD1,000. He also proposed easing the burden on these taxpayers by providing a universal homeowner tax credit to those who do not itemize their deductions, benefiting 10 million homeowners, the majority of whom make under USD50,000 per year. Obama would also eliminate all income tax for seniors making less than USD50,000 per year,

Obama says that his tax cuts would be paid for by ending tax breaks for large corporations, cracking down on offshore financing and increasing marginal tax rates for the wealthy by raising both the maximum rate on capital gains and the top tax rate on qualified dividends.

McCain meanwhile, has proposed to permanently extend the 2001 and 2003 tax cuts, increase deductions for taxpayers supporting dependents, reduce the corporate income tax rate, and allow immediate deductions for investments in certain capital equipment. However, according to the Tax Policy Center, McCain’s tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households.

Also, despite their assertions to the contrary, neither candidates' tax plan will make a meaningful contribution to the ironing out of deficiencies in the tax code, the Center argues.

"Fundamental reform of our tax system is one way to resolve these problems, but, at least in part because reform creates both winners and losers, the leading presidential candidates have not addressed it seriously," the analysis stated.

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