Friday, August 29, 2008

Sorting through candidate's tax plans

Specifics are hard to come by, but Senator Obama's speech last night reminded me that tax policy will be a big issue in the next couple of months. Both candidates are promising tax cuts for the middle class. Sounds appealling and wonderful, almost as nice as free hot fudge sundaes every week.

Tax Prof Blog has an interesting comparison of the tax "breaks" here. It includes a link to the remarkable Obama Tax Cut Calculator.

I plugged in a single married wage earner with no children earning $100,000 per year and got this:

"Your Obama Tax Cut is: $920.73
John McCain would tax you $289.59 MORE than Barack Obama."

So John McCain has a tax cut too, just not as big.

The key, according to the methodolgy section, is that Obama is mostly going to tax the upper 1% more heavily. But here is the interesting word play:

"Obama will only increase taxes for the top 1% of incomes; and this isn't really an increase: he's simply going to let the Bush tax cuts expire."

There's a lot of missing context and history as to why the Bush tax cuts are set to expire, but it is fairly plain that allowing them to expire is in fact an increase.

One major problem with either plan is that they both look to run up the government debt even more. From the executive summary provided by the Tax Policy Center:

"Both candidates prefer to compare their plans to the “current policy” baseline, which would extend the 2001 and 2003 tax cuts and indefinitely extend an indexed
AMT “patch”—and collect nearly $3.6 trillion less than under current law over the coming decade. Against that baseline, Obama would raise revenues by about $600 billion over the decade, while McCain would lose $600 billion. But choice of baseline doesn’t change how the proposals would affect the budget picture; without substantial cuts in government spending, both plans would sharply increase the national debt. Including interest costs, Obama’s tax plan would boost the debt by $3.5 trillion by 2018. McCain’s plan would increase the debt by $5 trillion."

I'm starting to hear echos of "read my lips. . . ."

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