Obama and McCain’s Tax Policies Compared
The Tax Policy Center has done an analysis of the tax plans put forth by Barack Obama and John McCain. The conclusions are interesting. From the abstract:
On “corporate welfare”:
Finally, each candidate promises to broaden the tax base and reduce corporate loopholes. McCain lists eight breaks for oil companies as targets but, other than that, is short on details for his pledge to eliminate “corporate welfare.” Obama identifies a variety of steps, including basis reporting for capital gains, taxing carried interest as ordinary income, and enacting sanctions on international tax havens that don’t cooperate with enforcement efforts, but he would also need additional as-yet-unspecified policies to achieve his revenue target for base broadening.
On the Bush Tax cuts:
Although both candidates have at times stressed fiscal responsibility, their specific non-health tax proposals would reduce tax revenues by $3.7 trillion (McCain) and $2.7 trillion (Obama) over the next 10 years, or approximately 10 and 7 percent of the revenues scheduled for collection under current law, respectively. Furthermore, as in the case of President Bush’s tax cuts, the true cost of McCain’s policies may be masked by phase-ins and sunsets (scheduled expiration dates) that reduce the estimated revenue costs. If his policies were fully phased in and permanent, the ten-year cost would rise to $4.1 trillion, or about 11 percent of total revenues.
On the beneficiaries of tax cuts:
Senator 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. Many fewer households at the bottom of the income distribution would get tax cuts and those whose taxes fall would, on average, see their after-tax income rise much less. In marked contrast, Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise.
The full report is here (PDF).
What should voters take away from this? They have a clear-cut choice. The McCain plan offers benefits to high-income taxpayers; the Obama plan offers benefits to lower to middle income taxpayers.
Here’s the thing. People who are in those high-income brackets are able to put groceries on their tables and gas in their cars, even when the gas costs upwards of $4.50/gallon. Hypothetically, if it costs everyone $40K per year to live comfortably (let’s not make it the bare minimum to stay above the poverty line), then dollars earned above that comfort line that are taxed at a higher rate still represent extra dollars in the pockets of high earners.
When I hear someone say to me that they hit a windfall year income-wise and then object to paying tax on it, I get bugged. Really bugged. Because even after taxes, they’ve got 50% of a windfall in their pocket. The guy making 40K a year is lucky to put away something for retirement, and only dreams of a windfall.
There are many, many more of the 40K earners than the windfall folks, which is why it seems easier to implement the McCain plan; e.g., a little from many adds up to a lot. The problem is that those who are not at that 40K minimum comfort level stand less of a chance of ever moving past the minimum. If economic hard times hit, like they are right now, Joe Windfall will still have half of the windfall, while John MiddleClass will be trying to figure out how to stay in the same place that he was a year ago.
For most of us, we are not in the same place we were a year ago. That small cushion that we had has been deflated by rising food, fuel and utility prices, all necessities. In the meantime we’re losing homes, and the country as a whole has a 3 trillion dollar war debt to deal with.
To me, it seems clear that it’s time to give the John MiddleClass a break. If that means a piece of Joe Windfall’s windfall has to be paid in tax, so be it.