McCain and Obama Tax Plans 101


Ever since the candidates started debating I’ve wanted to understand how their respective tax plans stacked up. I have heard too many people repeating what one or the other of the candidates have SAID about their tax plans. But what will the candidates really DO?

A little preliminary research revealed that the full picture is complicated, but what I really want to know is how will those plans affect ME. And by me, I’m also referring to my neighbors, most of the people in my town, and the middle class in general. (And a lot of us are ‘small businesses’ or we file a Schedule C.) Specifically, what I want to know about are all those great tax cuts we got in 2001 and 2003 going to stay or go away.

Here’s the scoop according to the Committee for a Responsible Federal Budget.

McCain’s Plan – Net Cost $294 billion

Senator McCain supports renewing and making most of the major tax cuts enacted in 2001 and 2003 permanent, which will otherwise expire at the end of 2010. The cuts include:

– lower individual income tax rates
– the expanded child tax credit
– reduced tax rates for capital gains and dividends
reduced marriage penalties
– the elimination of the estate tax (which Senator McCain would restore in part),
– and various other provisions.

This estimate is the cost of making all of the tax cuts permanent.

Obama’s Plan – Net Cost $294 billion

Senator Obama supports renewing and making all of the major tax cuts enacted in 2001 and 2003 permanent for families making less than $250,000, which will otherwise expire at the end of 2010. The cuts include:

– the four lowest marginal income tax rates
– the expanded child tax credit
– reduced marriage penalties
– and various other provisions [including an estate tax]

In developing its proposals, the Obama campaign assumed for the purposes of its baseline that the rest of the 2001 and 2003 tax cuts would be renewed and then proposed reversing several of the cuts in order to pay for other proposals.

This estimate is the cost of making all of the tax cuts permanent.

For Those Making over $250,000 – Net Revenue $76 billion

For most of us, McCain’s and Obama’s plans look pretty even. However, if you fall into the top two tax brackets of 33 percent and 35 percent, under Obama’s plan your taxes will revert to the pre-2001 levels of 36 percent and 39.6 percent. Obama will also phase out certain tax benefits for people making over $250,000.

(FYI: The second to highest tax bracket (currently 33%) kicks in at an AGI of over $200,000 for a married couple filing jointly.)

Additionally, Obama will increase capital gains and dividends taxes on higher earners. If you make less than $250,000, your capital gains rates and dividends rate of 0 and 15 percent remain the same. For those who earn more, it jumps to 20 percent.

Who’s Plan is Best?

I’m no economist so I can’t tell you how the differences would affect us as a nation. However, if you’re looking at the plans from a selfish perspective, depending on your situation it’s only clear who’s plan you like better if you’re in the higher income brackets.

The rest of us will have to make a decision based on something else. But what?

  • Mark

    IMHO, the biggest taxation variance occurs where we review corporate taxation. The tax burden on corporations in the US is incredibly high compared to the burden imposed by other countries we compete with internationally; especially when you add in the various state taxes imposed as well. When the Obama campaign talks of taxing “Greedy corporations” he speaks of further taxing all of us. Corporations are made up of employees and shareholders which is all of us. More taxes = less money available for R&D, employees, and expansion. This impacts the “middle class” directly that the Obama camp says they want to support and protect. This is classic socialist philosophy and flawed economic strategy. If the US lowers corporate tax levels we become more attractive as a location and increase domestic corporate expansion. More employment is far superior to more government programs.

  • Ryan

    Mark, you are just plain wrong. This is simplistic trickle-down thinking. Two facts: 1) Corporations end up paying an effective tax, after loopholes are applied, that is lower than most countries. Look at how much tax is payed, not how much is theoretically asked for. 2) The fact of the matter is that not all wealth trickles down. Much wealth gets horded away. Much wealth migrates into offshore bank accounts.

  • Gary

    I’m in a position where a President Obama would probably raise my taxes. However, if I get sane rational adult control over the country and the financial markets, but it means I’m paying a few bucks more in taxes each year, PLEASE, raise my taxes.

    Three words for you: President Sarah Palin. I’ll take the higher taxes, thanks.

  • Richard

    Ryan, you have fallen into the clever little trap sprung by us evil capitalist. Yes, companies pay an effective tax rate. But wouldn’t it be better if they paid lower taxes to begin with and rationalized their financial resources for the benefit of their employees, customers, and stockholders instead of for the good of their tax lawyers, accountants, and offshore bankers. Do we really need the MENZA candidates in Washington like Speaker Pelosi and Congressmen Frank and Wiener (Barney and Anthony respectively) telling us where the money should be spent?

    Now it’s Gary’s turn: In 2006, the top 1% of earners paid more taxes than the bottom 99%. Three words for you: Do your research. Your command of the facts is worse than Joe Biden’s. We can discuss this at Katie’s Restaurant in Wilmington. Why don’t you go there and get us a table, I’ll catch up with you as soon as I can.

  • Ryan

    Richard. You didn’t address my points. Sure, I’m fine lowering the effective tax and removing loopholes. In fact, I’d prefer it. But let’s be truthful here: at the end of the day, a corporation works for it’s shareholders, not the American people, not it’s own employees. So let’s cut the bs about trickle down economics, because while some wealth trickles down, most of it gets siphoned out by the people at top.

  • Richard

    And taxing at a higher rate fixes this how????

  • According to a study by the Government Accountability Office (GAO):

    1. Almost 66% of U.S. companies and 68% of foreign companies do not pay federal income taxes.

    2. Between 1998 (under Clinton) and 2005, 1.3 million U.S. corporations and 39,000 foreign companies doing business inside the United States paid zero taxes on a total of $2.5 TRILLION in revenue.

    So, Let’s make it zero, doesn’t matter. It schmucks like us that foot the bill!