Anyone who doubts that the American dollar just isn’t what it used to be need look no further than the nation’s record job losses, exorbitant food and gas prices, and unprecedented home foreclosure rates. These and other bread-and-butter issues will be at the forefront of voters’ minds when they head to the polls this fall, and the outcome of the presidential election will likely depend on which candidate they believe has the best plan to reverse these economic trends.
Sens. John McCain and Barack Obama, the presumptive nominees, have released tax plans that offer distinctly different approaches that each claim will help cure the nation’s economic woes.
According to a study by the nonpartisan Tax Policy Center, a joint effort of the Urban Institute and Brookings Institution, McCain supports tax cuts that would provide the greatest benefits to high-income taxpayers who would see their after-tax income rise by more than twice the average for all households. Obama’s plan, the study found, offers much larger tax breaks to low- and middle-income taxpayers and increases taxes for high-income earners.
“McCain’s proposals are clearly oriented toward making a tax system more favorable for high-income individuals and businesses that he sees as making investments to move the economy ahead. Obama’s proposals are more tailored to lower-income people to provide support and incentives and additional disposable income.â€ says Margaret Simms, an Urban Institute senior fellow and a member of the BLACK ENTERPRISE Board of Economists. “Broadly characterized, Obama’s plan would be more favorable to African Americans. While it’s true that African Americans are doing better than they have in the past, on average, they’re still disproportionately in those lower income categories.â€ According to Simms, the McCain proposal has features that might be more attractive to business owners related to equipment deduction and the capital gains tax.
McCain proposes to make permanent all of the provisions in President Bush’s tax cuts except for the estate tax repeal, which would have a $5 million exemption and 15% rate. The current tax law under Bush has a $3.5 million exemption (meaning estates that fall below this cutoff pay no estate taxes) and a max of 45%. “McCain’s law would raise the exemption and lower the tax rate. The effect would be to make more estates tax-free and reduce the tax rate (and take) on all estates,â€ says Simms.
The Arizona senator would extend and index the 2007 alternative minimum tax (AMT) patch and increase the exemption by 5% in excess of inflation after 2013. Under his plan, the dependent exemption would get a phased-in increase by two-thirds and the minimum corporate income tax rate would be phased from 35% to 25%. It would allow a first-year deduction of three- and five-year equipment and deny interest deduction and convert R&D credit to 10% of wages incurred for R&D. The plan would also replace exclusion from income for employer-sponsored insurance with a tax refundable credit of $2,500 for individuals and $5,000 for families.
Obama’s plan would make permanent select provisions of the president’s tax cuts,