including child credit expansion, and would allow the cuts to expire for taxpayers earning more than $250,000 a year. He would make the estate tax cut permanent with a $3.5 million exemption and 45% rate. In addition, Obama’s plan offers a refundable “Making Work Pay Credit” of 6.2% up to $8,100 of earnings; a 10% Universal Mortgage Credit for nonitemizers; expand the childless Earned Income Tax Credit and Child and Dependent Care Credit; and eliminate income taxes for seniors earning less than $50,000 per year. He would mandate automatic 401(k)s and IRAs and offer income-related subsidies for health insurance.
Nancy Pfotenhauer, a senior policy adviser to McCain, says that the Republican senator is offering a pro-growth tax plan that focuses on generating economic growth and jobs. “He wants to keep tax rates low wherever possible, make changes that will improve the competitiveness of American companies in the global market, and make sure tax policies encourage job creation, not penalize it,” says Pfotenhauer.
BE Board of Economist member William Spriggs, who chairs Howard University’s economics department and is an Obama supporter, sees things differently. He says Pfotenhauer is right only if one believes there has been growth under Bush. “You have to ask yourself what did we get for the last eight years and the answer is we got a housing bubble. If that’s their idea of growth then they’re going to be in trouble because that bubble burst. Millions of jobs have been lost and the other effect has been huge deficits, which was not pro-growth because the American savings rate lowered overall. That’s part of what has contributed to the decline in the dollar and the result of that, in part, is reflected in these higher gasoline prices,” says Spriggs. He asserts that by making the Bush tax cuts permanent, they will balloon and increase the deficit even further. “So, if McCain’s not going to give us the deficits of Bush, he will have to make very dramatic cuts in the federal budget, and the question is how and where,” says Spriggs.
Pfotenhauer charges the tax cuts have been made controversial by the media because they’re attached to an unpopular president. She also says that many taxpayers, including middle-income earners who earn between $50,000 and $70,000, would be hurt by Obama’s capital gains proposal, which would increase the rate from 15% to 25%.
“There is a huge difference between the two candidates on tax policy. Obama has promised to raise taxes on income wages subject to the payroll tax as well as allow the capital gains rate to pop back up. He does nothing to lower the corporate tax rate which is the second worst in the world and is a serious impediment to international competitiveness,” she says. “He slams small businesses with a healthcare ‘pay-or-play’ mandate that would cost an estimated $12,000 for each employee with a family. This combination will have a devastating affect on economic growth. No economist worth their salt raises taxes in a soft economy.”
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