The state of the US economy is always a politically charged issue but never more than this year as the dreaded d(epression) and r(ecession) words are freely used by both economists and talking heads on TV. This is what Fed Chairman Ben Bernanke had to say in his February 17th state of the economy speech –
“…the outlook for the economy has worsened in recent months, and the downside risks to growth have increased. …The softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term."
No surprise then, that the presidential candidates have made restoring economic luster a significant plank of their stump speeches. Even John McCain, who once said( in an unguarded moment that he probably now regrets) “The issue of economics is something that I've really never understood as well as I should” is talking the talk now on balancing the budget and bringing the burgeoning trade deficit under control.
To make the two candidates positions on improving the state of the US economy a little less opaque, we have decided to separately discuss three aspects of this issue – taxation, job growth & economic relief and balancing the budget. Today’s article covers the candidates’ tax policies. In an environment where the federal budget deficit is huge and Social Security payments are expected to increase substantially, taxation as a revenue source becomes crucial. Nearly all of the tax cuts established since 2001 are set to expire by 2010.
Here is an excellent chart from Photobucket to provide a snapshot of the two candidates' proposals on income tax –
Update: To calculate your income tax impact under Barack Obama's plan, check this out.
Obama proposes freezing the estate tax at 2009 levels: a 45% tax rate on estates valued at more than $3.5 million. Married couples can combine their exemptions for a total of $7 million. The campaign claims that this would "shield all but about 100 estates (99.7%)with small business income from any estate taxation."
McCain favors a 15% tax rate, equal to the capital-gains tax rate, and an individual exemption of $5 million ($10 million for married couples).
· Consider reducing the corporate tax rate in conjunction with revising the tax code.
· Make R&D credit permanent.
· Impose windfall profits tax on oil and gas companies.
· Eliminate capital gains tax for start-ups.
· Make renewable production credit permanent.
· Require companies to verify transactions that have benefits other than their tax benefits.
· Reduce corporate tax rate to 25% from 35%.
· Make R&D credit permanent, but change formula.
· Repeal several oil company tax breaks.
· Accelerate business expense deductions.
· Broaden corporate base.
- Voted YES on increasing tax rate for people earning over $1 million. (Mar 2008)
- Voted NO on allowing AMT reduction without budget offset
- (Mar 2008)Voted NO on raising the Death Tax exemption to $5M from $1M. (Feb 2008)
- Voted NO on repealing the Alternative Minimum Tax (Mar 2007)
- Voted NO on raising estate tax exemption to $5 million(Mar 2007)
- Voted NO on supporting permanence of estate tax cuts (Aug 2006)
- Voted NO on permanently repealing the `death tax`(Jun 2006)
- Voted YES on $47B for military by repealing capital gains tax cut (Feb 2006)
- Voted NO on retaining reduced taxes on capital gains & dividends
- (Feb 2006)Voted NO on extending the tax cuts on capital gains and dividends. (Nov 2005)
- Rated 100% by the CTJ, indicating support of progressive taxation(Dec 2006)
- Sponsored a bill a bill last year requiring a shareholder vote on compensation. Bill did not pass
- Opposed bill sponsored by Senator Obama on regulating CEO compensation
- Farm Bill also contained a measure extending a tax break for developing wind power, which McCain specifically opposed
- Voted YES on allowing AMT reduction without budget offset(Mar 2008)
- Voted YES on raising the Death Tax exemption to $5M from $1M (Feb 2008)
- Voted YES on repealing the Alternative Minimum Tax(Mar 2007)
- Voted YES on raising estate tax exemption to $5 million(Mar 2007)
- Voted YES on supporting permanence of estate tax cuts (Aug 2006)
- Voted YES on permanently repealing the `death tax`(Jun 2006)
- Voted NO on $47B for military by repealing capital gains tax cut (Feb 2006)
- Voted YES on retaining reduced taxes on capital gains & dividends(Feb 2006)
- Voted YES on extending the tax cuts on capital gains and dividends(Nov 2005)
On overhauling the tax code: "Instead of having all of us pay our fair share, we've got over $1 trillion worth of loopholes in the corporate tax code. This isn't the invisible hand of the market at work. It's the successful work of special interests." September 2007.
On his approach to corporate America – "I'm a pro-market guy. And I always have been. What I do get frustrated with is an economy that is out of balance, that rewards a very few – with rewards that are all out of proportion to their actual success – while ordinary, hardworking Americans continue to get squeezed. Over the last decade or so, this economy grew substantially, and more than half of the total growth was captured by the top 1%." – June 2008.
On July job-loss report -“Today’s jobs report is an urgent reminder that we cannot afford four more years of the failed Bush economic policies, and that is what Senator McCain is offering. He’s proposing to cut the gasoline tax paid by the oil companies and trust that they will pass on the savings in the form of lower prices at the pump. And he’s also proposing tax cuts for corporations and the wealthiest Americans in the hopes that a little bit of it will trickle down to ordinary Americans.” – Aug
“Unlike Sen. Obama, I do not believe that raising taxes is the answer to our economic problems. There is no surer way to force jobs overseas than to raise taxes on businesses. The American people cannot afford economic policies that will take us backward.” August 2008.
On CEO compensation – "Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct while the offenders themselves are packed off with another $40 million or $50 million for the road." June 2008.
"McCain has repeatedly claimed that Obama would raise tax rates for 23 million small-business owners. It's a false figure. We find that the overwhelming majority of those small-business owners would see no increase, because they earn too little to be affected. Obama's tax proposal would raise rates only on couples making more than $250,000 or singles earning more than $200,000.
McCain argues that Obama's proposed increase is a job-killer. He has a point. It's true that increasing taxes on those at the top would leave them less money for other purposes, including investment and hiring in the case of business owners. But the number of business owners who would see their rates go up would be only a small fraction of what McCain says. Many would see their taxes go down."
UPDATE: A Wall Street Journal piece by Jason Furman and Austan Goolsbee, economic policy advisors for Obama, highlights the policy detail McCain prefers to downplay. "…Sen. McCain’s plan does include one new proposal that would result in higher taxes on the middle class. As even Sen. McCain’s advisers have acknowledged, his health-care plan would impose a $3.6 trillion tax increase over 10 years on workers.
Sen. McCain’s plan will count the health care you get from your employer as if it were taxable cash income. Even after accounting for Sen. McCain’s proposed health-care tax credits, this plan would eventually leave tens of millions of middle-class families paying higher taxes. In addition, as the Congressional Budget Office has shown, this kind of plan would push people into higher tax brackets and increase the taxes people pay as their compensation rises, raising marginal tax rates by even more than if we let the entire Bush tax-cut plan expire tomorrow. "