|09-04-2008, 08:54 AM||#1|
AKA "THE STANDARD"
Join Date: Aug 2007
Location: BIG D
non partisan look at both candidates tax plan
Executive Summary August 28, 2008
A Updated Analysis of the 2008 Presidential Candidates’ Tax Plans
Executive Summary of the August 15, 2008 analysis
By Roberton Williams and Howard Gleckman
Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next ten years, according to a newly updated analysis by the non-partisan Tax Policy Center. Neither candidate’s plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified.
Compared to current law, TPC estimates the Obama plan would cut taxes by $2.9 trillion over the 2009-2018 period. McCain would reduce taxes by nearly $4.2 trillion (see Summary Revenue Table and Tables R1 and R2). These projections assume the 2001 and 2003 tax cuts expire in 2010 and that the Alternative Minimum Tax is fully effective with 2008 exemptions.
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.
The Obama plan would reduce taxes for low- and moderate-income families, but raise them significantly for high-bracket taxpayers (see Figure 2). By 2012, middle-income taxpayers would see their after-tax income rise by about 5 percent, or nearly $2,200 annually. Those in the top 1 percent would face a $19,000 average tax increase—a 1.5 percent reduction in after-tax income.
McCain would lift after-tax incomes an average of about 3 percent, or $1,400 annually, for middle-income taxpayers by 2012. But, in sharp contrast to Obama, he would cut taxes for those in the top 1% by more than $125,000, raising their after-tax income an average 9.5 percent.
These projections are built on descriptions of the candidates’ plans provided by senior McCain and Obama staff (see Table 1). However, TPC has also projected costs based upon what candidates have actually said on the campaign trail, and those promises paint a quite different picture (see second panel of Summary Revenue Table).
For instance, TPC estimates that one version of McCain’s proposal to create an optional simplified individual income tax system would increase the cost of his plan by more than $1 trillion over 10 years. McCain has provided few details for his plan, but TPC projected the costs of a similar proposal made by the Republican Study Committee.
obama has proposed raising the payroll tax for those earning over $250,000. Again, he has not provided details, but TPC assumes this would be a 2 percent income tax surcharge on adjusted gross income above $250,000 for couples and $200,000 for others and an additional 2 percent payroll tax for employers on each worker’s earnings above those levels. Such a plan would increase taxes on high-income workers by nearly $400 billion over a decade.
In the July 23 update of its analysis, TPC added a preliminary estimate of the candidates’ health care proposals. Because the campaigns did not provide complete plans, TPC assumed certain details. We conclude that the McCain plan, which would replace the current exclusion for employer-paid premiums with a refundable income tax credit of up to $5000 for anyone purchasing of health insurance and make other changes to the healthcare system, would increase the deficit by $1.3 trillion over 10 years and modestly trim the number of uninsured. The Obama plan, which would make relatively low-cost insurance available to everyone through non-group pools and subsidize premiums for low- and moderate-income households, would cost $1.6 trillion, but would also cover virtually all children and many currently uninsured adults.
Executive Summary August 25, 2008
TPC projects the McCain plan would trim the uninsured by 1 million in 2009 and nearly 5 million by 2013, although their numbers would slowly rise thereafter because the tax credit would fail to keep pace with premiums (see figure). Obama would reduce the uninsured by 18 million in 2009 and 34 million by 2018. Even under the Obama plan, however, 34 million Americans would still lack insurance in 2018.
The new TPC analysis updates earlier sets of estimates released in June and July 2008. The revised estimates reflect changes in each candidate’s plans, additional details released by the campaigns (particularly that by the Obama campaign on August 14, 2008), and modifications to our tax modeling procedures.
The Tax Policy Center is a non-partisan joint venture of The Urban Institute and The Brookings Institution Figure 2.Obama and McCain Tax Proposals as Described by Campaign Staff and Economic AdvisersAverage Percentage Change in After-Tax Income, 2012-4.0-2.00.02.04.06.08.010.012.0LowestQuintileSecondQuin tileMiddleQuintileFourth QuintileTop QuintileAllTop 1 PercentTop 0.1PercentCash Income PercentilePercentObamaMcCain
Executive Summary August 25, 2008
Table 1. Summary of the Major Provisions of the McCain and Obama Tax Plans
2001/2003 Tax Cuts
Make permanent all provisions other than estate tax repeal
Make permanent select provisions, including child credit expansions; 10, 15, 25, and 28 percent rates; changes to tax implications of marriage
Make permanent estate tax with $5 million
exemption and 15 percent rate
Make permanent estate tax with $3.5 million exemption and 45 percent rate
Extend and index 2007 AMT patch
Permanently index 2007 AMT exemption; increase exemption by additional 5 percent per year after 2013 (temporarily)
New Tax Cuts
Increase the dependent exemption by two-thirds (phased in)
Refundable "Making Work Pay Credit" of 6.2 percent of up to a maximum of $8,100 of earnings
Reduce the maximum corporate income tax rate from 35 to 25 percent (phased in)
Refundable "Universal Mortgage Credit" of 10 percent of mortgage interest for nonitemizers
Allow first-year deduction of 3- and 5-year equipment, deny interest deduction (expires)
Eliminate income tax for seniors making less than $50,000 per year
Convert R&D credit to 10 percent of wages incurred for R&D, make permanent
Extend childless EITC phase-in range, increase phase-out threshold
Suspend federal gas tax for summer 2008
Increase EITC phase-in rate to 45 percent for families with three or more children
Increase to $5,000 the add-on to EITC phase-out threshold for married filers
Make CDCTC refundable and increase maximum credit rate to 50 percent.
Make saver's credit refundable and change formula to 50 percent match up to $1,000 of contributions
Make permanent R&D credit and renewable energy production tax credit
Mandate automatic 401(k)s and automatic IRAs
Increase Hope credit: 100% match rate on up to $4,000
Income-related subsidies for health insurance purchased through new health insurance exchange
Replace income tax exclusion for employer-sponsored insurance with refundable credit of $2,500 for individuals and $5,000 for families
Pay or play for employers
Repeal domestic production activities deduction
Increase maximum tax rate on capital gains and qualified dividends to 20 percent
Eliminate oil and gas loopholes
Tax carried interest as ordinary income
Unspecified corporate base broadeners
Eliminate oil and gas loopholes
Tax publicly traded financial parts. as C corps.
Codify economic substance doctrine
Reallocate multinational tax deductions
Require information reporting of basis for gains
Create optional alternative tax with two rates and larger standard deduction and personal exemption
Provide taxpayers with simple returns the option of pre-filled tax forms to verify and sign.
Executive Summary August 25, 2008
2009-132009-18(1) Make permanent all provisions of the 2001 and 2003 tax cuts other than estate tax repeal, including the reduced marginal tax rates, the marriage penalty relief, and the expanded child credit.-584.6-1,729.8(2) Index AMT exemption for inflation permanently, increase by inflation plus 5% annually beginning in 2014 until the joint exemption surpasses $143,000, and allow personal nonrefundable credits against the AMT.-382.5-1,232.8(3) Increase estate tax exemption to $5 million (unindexed), cut rate to 15%.-156.2-579.6(4) Increase dependent exemption by $500 annually between 2010 and 2016 and index for inflation thereafter. Accelerate increase for joint tax units.-41.7-177.9(5) Reduce corporate income tax rate to 30% in 2010-11, 28% in 2012-13, 26% in 2014, and 25% thereafter.-231.0-734.7(6) Repeal domestic production activities deduction.43.897.6(7) Allow expensing of all 3-year and 5-year business equipment. Deny interest deductions for expensed equipment. Sunset after 2013.-231.4-45.0(8) Permanently extend and modify the R&D credit.-51.5-133.1(9) Eliminate corporate welfare.157.8364.8Unverifiable campaign-provided revenue estimateTotal of all provisions-1,477.3-4,170.5Addenda:Net revenue impact against tax cuts extended,-329.7-595.8AMT-patched baselineFederal tax revenue as a share of GDP17.617.6Source: Urban-Brookings Tax Policy Center Microsimulation Model (version 0308-6).Table R1Senator John McCain's Tax ProposalsImpact on Tax Revenue, 2009-18As Described by Campaign Staff 5
Executive Summary August 25, 2008
2009-132009-18(1) Make permanent the EGTRRA child credit expansions, marriage penalty relief, 10/15/25/28% rates; increase Pease and PEP thresholds to $250,000 ($200,000 for unmarried individuals).-307.5-853.5(2) Make permanent the 0%/15% tax rates on capital gains and qualified dividends for taxpayers with AGI under $250,000 ($200,000 unmarried). Impose 20% rate on gains and dividends for taxpayers above those thresholds, effective 01/01/09.-24.0-166.8(3) Restore PEP/Pease with the increased thresholds in 2009-10; restore the 36/39.6% rates71.771.7(4) Extend and index the 2007 AMT patch-379.9-1,167.1(5) Freeze 2009 estate tax law (exemption not indexed)-76.6-284.1(6) Create "Making Work Pay Credit"-323.7-709.5(7) Create "Universal Mortgage Credit"-54.0-125.7(8) Mandate automatic 401(k)s and automatic IRAs, expand saver's credit-92.3-203.5(9) Create "American Opportunity Tax Credit"-58.2-138.9(10) Phased-in expansion of earned income tax credit-19.3-46.5(11) Expand child and dependent care tax credit-10.6-22.8(12) Exempt seniors earning less than $50,000 from income taxation with phase-in of tax for those with income between $50,000 and $60,000.-35.4-69.9(13) Make permanent the R&D and renewable energy production credits-56.6-155.1(14) Revenue-raisers399.7924.1Unverifiable campaign-provided revenue estimateTotal of all provisions-966.7-2,947.6Addenda:Net revenue impact against tax cuts extended,180.9627.1AMT-patched baselineFederal tax revenue as a share of GDP 118.318.2Source: Urban-Brookings Tax Policy Center Microsimulation Model (version 0308-6).Table R2Senator Obama's Tax Proposals of August 14, 2008: Impact on Tax Revenue, 2009-18(1) In official budget estimates the expansion of refundable credits would increase outlays rather than reduce revenues. Since we do not score outlays, we include the effect as a reduction in revenue in these tables.Economic Advisers' Version (No Payroll Surtax)
|09-04-2008, 09:39 AM||#2|
Hokie since 1993
Join Date: Apr 2001
Location: Denver, CO
We need a flat tax rate period. Then everybody pays their fair share of their income. This up and down deduction bull**** is for the birds.
|09-04-2008, 09:51 AM||#3|
AKA "THE STANDARD"
Join Date: Aug 2007
Location: BIG D
|09-04-2008, 11:00 AM||#4|
Ring of Famer
Join Date: Aug 2005
Location: St Augustine, FL
If you think your taxes are going to go down under an Obama administration, I have a bridge to sell you. Democrats raise taxes, it's what they do. All they have learned is that running on this is death electorally (see Walter Mondale), so they will always claim to want to reduce taxes for the middle class, then when they get into office, your taxes go up.
On Sept. 8,1992, Bill Clinton said, "The only people who will pay more income taxes are the wealthiest 2 percent, those living in households making over $200,000 a year." Sound familiar? But what happened once he was elected:
Seeking to explain why he is backtracking on a campaign promise to cut taxes for the middle class, President-elect Bill Clinton said Thursday that the plan was never a major theme in his race for the White House.Soon after assuming the presidency, Clinton pushed through the largest tax increase in history. The NY Times reported that people earning under $100,000 paid an additional $3 billion in '94. But wait, Clinton and the media claimed that only the top 2% were going to pay more taxes?
|09-04-2008, 11:07 AM||#5|
Never say Always
Join Date: Jan 2003
The Candidates on Taxes: Finding the Devil in the Details
Published: September 03, 2008 in Knowledge@Wharton
This is the first in a series of articles examining the various economic and fiscal proposals of the two candidates for president: Democratic Sen. Barack Obama and Republican Sen. John McCain. The articles will appear in each issue of Knowledge@Wharton running up to the November election.
They may paint themselves as agents for a new, more bipartisan attitude in Washington, but John McCain and Barack Obama both tend to adhere to their parties' usual approaches to tax policy.
McCain would cut overall income taxes for the top 1% of American earners, according to recent data from the Tax Policy Center, a non-partisan joint venture of the Urban Institute and the Brookings Institution. Obama would raise taxes on those in the highest tax bracket, while reducing them for low- and moderate-income families.
The TPC study says both candidates' tax plans would substantially increase the national debt over the next decade, though the candidates themselves have made general promises to reduce the deficit and eventually balance the federal budget. The study also says that neither candidate articulates how they will do this. As for the tax cuts, McCain says he would renew the package of cuts initiated by President Bush (due to expire in 2011), while Obama says he will keep only some of those cuts.
"In deciding how much we're going to tax and spend now, we're implicitly deciding how much we're going to tax and spend in the future," says Wharton finance professor Nicholas Souleles. "Given our debt, if we increase our deficit spending now, we're going to either have to cut spending or raise taxes in the future.... You do have to remember that eventually you'll have to pay back your debt. So it's really about transferring resources over time, and that's a choice that policy makers have to [face]."
Souleles says it's useful for voters to think about where some of the bigger numbers are, such as the Bush tax cuts, new spending, and incentives to improve Americans' savings rate and address the credit crunch, to name a few. Proposals, such as McCain's to extend the Bush tax cuts and Obama's to roll them back for taxpayers in the highest brackets, offer a clear contrast between the candidates, Souleles says, but actual implementation of policy -- Congress must eventually approve the changes and is likely to tinker with key details -- is another matter.
Kent Smetters, a Wharton professor of insurance and risk management, agrees, and he worries about the combination of a Democratic president and a Democratic-controlled Congress. "Spending tends to go up dramatically when the president and Congress are of the same party, so that alone suggests that an Obama presidency would be more inclined to inflate the debt," Smetters says. "Senator McCain has made stopping wasteful spending and earmarks his signature cause in the U.S. Senate... despite solid Democratic majorities." But he also says that a single party's control over the White House and Congress is more likely to bring at least some action on such issues as the future of Medicare and the Alternative Minimum Tax.
Congress and Voters Hold Sway
A President McCain and his tax policies would face a formidable hurdle in Congress with both houses controlled by Democrats, notes Wharton finance professor Richard Marston. "It's basically a moot question on what his tax stances are," Marston says. "The state of the economy is the number-one determinant of elections, and McCain has been dealt a bad hand by the bust in real estate and the subsequent financial crisis. If McCain is elected, he will have to deal with an overwhelmingly Democratic Congress. So he won't be able to implement his tax agenda, anyway."
Either candidate "will be faced with budget realities that look a little different once they are in office," says Eric Toder, taxation and fiscal policy analyst at the Urban Institute, a Washington, D.C., economic and social policy research group. "But there is a history of enacting different policies [from their immediate predecessors], particularly at the beginning of an administration." Toder was an assistant secretary for tax analysis in the U.S. Treasury Department for several years during the Clinton administration, served in the Office of Research at the Internal Revenue Service and was a tax analyst at the Congressional Budget Office.
"The specific proposals are much more important at the beginning of an administration than at the end," Toder says. "General financial market activity takes time to adjust to policy changes." This happens even with two-term presidents: Ronald Reagan's tax plans in 1981 were entirely different from those of his second term, Toder adds. The same was true for Bill Clinton; middle class tax cuts became more possible in his second term when the economy was robust.
Janet Rothenberg Pack, a Wharton business and public policy professor, finds fault with both candidates' proposals. "McCain's saying he will not reverse the Bush tax cuts is a big mistake -- this economy is in enough trouble, and the budget deficit is really out of control," Pack says. "And the analysis of Obama's tax proposals seems like more of a welfare program."
According to Smetters, "Tax policy should ultimately be about collecting revenue in such a way so as to minimize its effect on economic growth. The tax code has gotten far away from this ... and it's clear that Senator Obama's plans go even farther away from this, as it uses tax credits to encourage a myriad of activities."
But all tax policy is intertwined with social programs, Pack says. For example, any solutions proposed for Social Security and Medicare -- which were formed to be all-inclusive -- will impact taxes directly. "There are so many interlocking [elements at work] here," she states, citing Social Security, pensions that can be revoked or frozen at any time, the availability of employee-sponsored 401(k) retirement funds, and an aging population as some of the issues that have to be factored into long-range taxation policies and income classifications.
The most radical change in taxes proposed by Obama concerns Social Security, Marston suggests. One advisor to the campaign told him the proposal would raise the Social Security tax rate by 4% on all income above $250,000, Marston notes. "An individual in the top tax bracket would pay 39.6% [the permanent tax rate that would prevail starting again in 2011] plus a 2.9% Medicare tax [which has no income limit] plus the 4% Social Security tax. The campaign is vague about when [any new taxes] would be imposed, but it is quite a departure from previous practice."
That's because Social Security was set up as an insurance system, "and every president since FDR has maintained the principle that Social Security taxes are like insurance payments in that they fund your future retirement," Marston says. "It's true that there is substantial redistribution within the system. An individual contributing the maximum amount to Social Security, currently those with an income of about $100,000, earns less Social Security income relative to contributions than an individual contributing with an income of only $30,000."
But anyone earning more than the maximum income "no longer has to contribute extra, because that person will not receive extra benefits as a result of the Social Security taxes," Marston adds. "The Obama proposal is to abandon the principle because it will raise Social Security taxes on higher-income individuals without any change in future benefits. The proposal is clever in exempting most of the middle class. Taxpayers making more than $100,000 would be exempt from extra taxes as long as their income was below $250,000."
The TPC broke down the candidates' proposals and found that both plans would result in cuts for most American families. However, of those in the much-discussed "top tenth of 1%" (incomes of $2.87 million or more), the Center found a difference of almost 16 percentage points: McCain's plan would decrease those top earners' taxes by 4.4%, while Obama's would increase them by 11.5%.
On the bottom of the scale, Obama's tax decreases are larger than McCain's, but for the middle ground of American families (three income categories that range from $66,000 to $227,000), the candidates' proposed tax cuts are similar, ranging from 1.4% to 3%.
Those similarities for the middle to upper-middle class are not very surprising, says Ben Harris, a senior research associate at the Washington, D.C.-based Brookings Institution. "That group tends to have a fair amount of capital gains, which would be lower under McCain than Obama. Obama wants to tax capital gains and dividends at 20% while McCain wants to continue the 15% rate. But then Obama also has a lot of targeted tax provisions that tend to affect this group."
Before the Bush tax cuts, dividends were taxed at the ordinary income tax (for the top bracket) of 39.6%. Capital gains taxes were lowered from 28% to 20% by President Clinton. "Bush then lowered both tax rates to 15% for the top bracket," Marston notes. "The Obama campaign has been a little vague about how much it will raise these two taxes. But they talk of rates between 20% and 28%."
Key Tax Is Unaddressed
Neither candidate will immediately address one of the toughest tax issues -- the Alternative Minimum Tax. The tax, once aimed at the very highest incomes, has gradually come to include some middle-income taxpayers, mostly because of inflation. Congress has been limiting the AMT's reach by enacting temporary "patches," and both presidential candidates propose more such patches until they can come up with a long-term solution.
The AMT is no small source of revenue for the government, Souleles says. "We're talking about on the order of a trillion dollars over 10 years. Both candidates have discussed trying a permanent fix, such as indexing it to inflation, but that would be a very expensive proposition." For starters, it would significantly reduce tax revenues, because millions of taxpayers would no longer be obliged to pay it. That makes cutting taxes, or extending the Bush cuts, even more difficult.
Harris agrees with Souleles' concerns about repealing the AMT -- doing it would be costly, but it should be done. "The problem is that it raises a lot of revenue by placing a fairly high tax burden on upper middle income families who weren't intended to be the target of the tax in the first place," Harris says. The AMT differs from the regular tax code in that it has one big exemption. "After that, it's essentially a flat tax. With the regular tax code, there's a smaller exemption, but the tax rates go up as income goes up. So this big exemption you have with the AMT matters a lot."
Obama's vice presidential running mate, Delaware Sen. Joseph Biden, said during his bid for the White House in late 2007 that he, too, would like to "reform" the AMT. By allowing the Bush tax cuts for the top 1% of earners to expire, he would use the money -- up to $50 billion over five years -- to invest in social and homeland security programs.
"There were 4.1 million taxpayers on the AMT in 2007," Harris says. "If the Bush tax cuts are extended, and the AMT is not patched, this number will jump to 38.8 million in 2012. If the Bush tax cuts are not extended, this number falls to 22.7 million. That is because the Bush tax cuts actually push people onto the AMT, a side effect of the administration's tax policy that is not well-known."
All the more reason to roll them back, Pack says. "It's tough to figure out if these really are solutions for more than a short period of time. Neither [candidate] is giving us a very satisfying set of proposals. The worst thing for McCain is that he would not reverse the tax cuts, even though he initially voted against them. You simply don't go to war and have a tax cut -- that's just unheard of."
Likewise, economists have stated that Obama, since he adopted a policy of keeping some of the Bush tax cuts while eliminating others, leaves a gaping hole in his numbers and undermines fellow Democrats who insist on "pay-as-you-go budgeting," a belief that new policies should be paid for upfront, not loaded on to the national debt.
"Obama has criticized Bush for his fiscal irresponsibility, and now he's using Bush's baseline as a yardstick by which to measure fiscal responsibility," Leonard Burman, co-director of the Tax Policy Center, told The Washington Post in August. "Congress hasn't agreed to extend the Bush tax cuts because they don't have the money to pay for [them]."
Some of Obama's maneuvering on the issue could be interpreted simply as election year politics, since allowing the cuts to expire means raising taxes -- something most candidates are loath to talk about on the stump. However, Souleles says there is a distinction to be made between getting through economic bad times with a short-term stimulus and making a tax cut permanent, or only for another 10 years. "They should be distinct decisions. If your goal really was to get through a recession, you could extend the tax cuts for one or two years. It's about distinguishing short-term motivations from long-term motivations, and thinking explicitly about the merits."