Do you understand the candidates' positions on tax cuts? Here are some talking points, so you can debate with your friends, regardless of your political persuasion. You also might want to consider this information when deciding how you will vote.
From the Tax Policy Center, excerpts from the summary of the Presidential candidates' positions on tax cuts: (emphasis supplied)
Tax and fiscal policy will loom large in the next president's domestic policy agenda. Nearly all of the tax cuts enacted since 2001 expire at the end of 2010. Both candidates have proposed major changes to the nation's tax laws.
Senator McCain would permanently extend the 2001 and 2003 tax cuts, increase deductions for taxpayers supporting dependents, reduce the corporate income tax rate, and allow immediate deductions for the cost of certain short-lived capital equipment.
Senator Obama would permanently extend certain provisions of the 2001 and 2003 tax cuts primarily affecting taxpayers with incomes under $250,000; increase the maximum rate on capital gains and qualified dividends; and enact new and expanded targeted tax breaks for workers, retirees, homeowners, savers, students, and new farmers.
Senator McCain proposes to extend and expand permanently the AMT "patch" that has prevented most individuals and families with incomes below $200,000 from being affected by the tax, and in our interpretation of his proposal, Senator Obama would also extend the patch.
Each candidate would also increase the estate tax exemption and reduce the estate tax rate compared with current law in 2011 and beyond, although Senator McCain would cut the tax much more than Senator Obama.
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.
Although both candidates have at times stressed fiscal responsibility, their specific non-health tax proposals would reduce tax revenues by $3.6 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 $4.0 trillion, or about 11 percent of total revenues.
Both candidates argue that their proposals should be scored against a "current policy" baseline instead of current law. Such a baseline assumes that the 2001 and 2003 tax cuts would be extended and the AMT patch made permanent.
Against current policy, Senator Obama's proposals would raise $300 billion, an increase of 2 percent, and Senator McCain's proposals lose $1.0 trillion (if fully phased-in and permanent), a decrease of roughly 2 percent.
Senator McCain has stressed that deficits should be closed by spending cuts, but policies he identifies, such as limiting earmarks, would offset only part of the revenue losses attributable to his tax plan.
The two candidates' plans would have sharply different distributional effects.
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 impact of the tax code on economic activity under each candidate's policies would differ in several important ways. Under Senator McCain's proposed policies, the top marginal rates (35 percent on individual income and 25 percent on corporate income) would be significantly lower than under Senator Obama's plan (39.6 and 35 percent, respectively). McCain's reduced individual and corporate rates could improve economic efficiency and increase domestic investment, but the larger future deficits would reduce and could completely offset any positive effect.
In contrast, Senator Obama's proposed new tax credits could encourage desirable behavior, particularly if the childless EITC and payroll tax rebate encourage additional labor supply among childless low-income individuals. However, he would also direct new subsidies at an already favored group-seniors -and an already favored activity-borrowing for housing-which could probably be better directed elsewhere.
Note from Kim: The choice is stark.
McCain:Tax cuts for the wealthy and lose $1 trillion.
Obama: Tax cuts for the middle class and gain $300 million.
Source: Tax Policy Center: A Preliminary Analysis of the 2008 Candidates' Tax Plans: http://www.taxpolicycenter.org/publications/url.cfm?ID=411693