McCain-Obama: Taxes

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McCain-Obama photo UPDATE: June 12 - Tax Policy Center has an excellent overview with numbers of Obama's and McCain's tax policy positions to date. Well worth a quick read.

John McCain and Barack Obama are just beginning to outline their policies. Until now, both have been very short on nuts and bolts to questions about their positions.

They are now beginning to work out those nuts and bolts. Here is what I have found about each on taxes, so far. It is important to note that wherever they stood on taxes before is to be taken with a grain of salt. Before, they weren't the presumptive nominees of their parties.

Taxes in General
Obama - June 10, Reuters (1) :

Obama told CNBC that he would raise taxes on Americans making $250,000 a year or more and raise the capital gains tax for those in higher income brackets while exempting small investors. He said the U.S. economy has been "out of balance for too long."

"The general principle of raising taxes on higher income Americans, like myself, and providing relief to those who haven't benefited as much from this new global economy, I think, is a sound one," Obama said.

But Obama, 46, said he would consider deferring some of the tax increases, depending on the economic situation he inherits from President George W. Bush should he win the November election.
McCain in a speech in Washington accused Obama of seeking the single largest tax increase since World War Two, Reuters reports. Reuter's also quotes McCain: "Under Senator Obama's tax plan, Americans of every background would see their taxes rise -- seniors, parents, small business owners and just about everyone who has even a modest investment in the market." Is McCain listening to Obama or Rove? Appears to be Rove.

Reuters reports:

McCain, 71, vowed to maintain Bush's tax cuts, lower corporate tax rates from 35 percent to 25 percent and allow companies to expense new equipment and technology in their first year.

He supported keeping capital gains taxes as they are now, doubling a tax exemption for children, and phasing out the Alternative Minimum Tax, which he said would save some 25 million middle-class families up to $2,000 in a year.

He said he could pay for the plan by cutting what he called wasteful government spending, including ethanol and sugar subsidies and weapons systems.

"We're going to scrub every agency of government and we're going to make them justify their existence. And if they can't, they're going to go out of existence," he said on CNBC.

The question is begged: Who is 'we', in McCain's quote. Surely he is not including the Democratic Congress in this 'we', is he? Does this spell gridlock and government shut downs if McCain is elected? McCain has vowed to use the veto pen to control runaway Congressional spending.

Obama's comments on the McCain tax plan: "I've said that John McCain is running to serve out a third Bush term, but the truth is when it comes to taxes, that's not being fair to George Bush," Obama told reporters in St. Louis, according to Reuters.

Oil Corporations
The Center for American Progress Action Fund, a Democratic organization reports that McCain's proposal to reduce corporate tax rate from 35% to 25% would net the 5 largest American oil companies $3.8 billion in tax savings. This despite the fact that McCain's economic advisor, Douglas Holtz-Eakin, said McCain's economic plan would eliminate "all special tax breaks" to these oil companies, who are currently enjoying record profits.

Obama on the other hand proposes a windfall profits tax on the oil companies reaping record profits. This measure was tried in the 1980's and produced a spike in federal revenues for a short time, but failed to produce the revenues anticipated in the long run, as the price of oil and gasoline dropped from the 1970s record highs and oil companies cut back on production in an attempt to shore up the price after the embargoes. It is debatable whether such a measure would have the anticipated results in this current environment which is substantially different from the 1980's.

Estate Taxes:
Mark Murray of NBC reports McCain said this morning: ""The estate tax is one of the most unfair tax laws on the books, and the first step to reform is to keep it predictable and keep it low." Murray goes on to cite McCain in 2006 on the Senate floor:

"In his 1906 State of the Union Address, President Theodore Roosevelt proposed the creation of a Federal inheritance tax. Roosevelt explained: 'The man of great wealth owes a peculiar obligation to the State because he derives special advantages from the mere existence of government.' Additionally, in a 1907 speech he said: 'Most great civilized countries have an income tax and an inheritance tax. In my judgment both should be part of our system of federal taxation.' He noted, however, that such taxation should 'be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits.'"

McCain added, "I agree with President Roosevelt, and I remain opposed to full repeal of the estate tax. I have indicated, for several years now, that I am open to considering a reasonable compromise that addresses the concerns of those on both sides of this issue. What constituted a fortune 'swollen beyond all healthy limits' in 1907 is very different from the wealth we see today. I don't think it's unreasonable to raise the amount exempted from estate taxes in order to protect America's family farms and small businesses while maintaining the tax for huge fortunes."

While McCain's campaign staff responded to Murray's reporting stating that McCain's position has not changed, one has to ask what McCain's second step will be after his morning quote: "the first step to reform is to keep it predictable and keep it low."

Obama wrote in his book (2),

"As currently structured, a husband and wife can pass on $4 million without paying any estate tax. In 2009, this figure goes up to $7 million. The tax thus affects only the wealthiest one-third of 1% in 2009. Repealing the estate tax would cost $1 trillion, and it would be hard to find a tax cut that was less responsive to the needs of ordinary Americans or the long-term interests of the country."
Obama wants to see the Bush tax cuts for the wealthy allowed to expire in 2010, including the reduction in the Estate Taxes.

McCain today called the estate tax that familiar GOP refrain, "the death tax" in a report by LA Times reporters Johanna Neuman and Maeve Reston (3). They report McCain said of Obama's intent to allow the estate tax cuts to expire and revert back to 55% for the wealthiest estates:

"After a lifetime building up a business, and paying taxes on every dollar that business earns, that asset should not be subjected to a confiscatory tax."
Sure sounds like McCain's second step in the reform of estate taxes is to eliminate it altogether, which would eliminate $1 trillion dollars from federal revenues, increasing deficits without commensurate spending cuts elsewhere.

Gas Tax Holiday.
This issue has McCain appearing the fool. From John McCain's own web site (5) is found this little gem:

John McCain Will Help Americans Hurting From High Gasoline And Food Costs. Americans need relief right now from high gas prices. John McCain will act immediately to reduce the pain of high gas prices.
Someone forgot to tell John McCain that he can't become president before January 2009, and therefore, lacks the authority or power to "act immediately to reduce the pain of high gas prices."

Obama saw through this one immediately when McCain first announced this gas tax holiday proposal and lambasted it as a political pandering trick which McCain could not enact. Critics of the 'holiday' call this plan robbing Peter to Pay Paul inasmuch as drivers would pocket up $30 extra per month from the 'holiday', but the total revenue loss to road and bridge maintenance insuring drivers safety on our roads would suffer by $9 billion and potentially cost 300,000 highway construction jobs, according to state highway officials, a NY Times article (4) reports. The American Society of Civil Engineers previously estimated that it will cost $94 billion a year over the next five years to maintain the country's roads and bridges, which is almost $35 billion more than we are projected to allocate in the federal budget.

Tax system reform:
Watch out for this one from McCain's web site. (5). "John McCain Will Propose An Alternative New And Simpler Tax System - And Give America A Real Choice. When this reform is enacted, all who wish to stay under the current system could still do so, but everyone else could choose a vastly less complicated system with two tax rates and a generous standard deduction."

That's it. That is all McCain has to say about it on his web site. This bears close watching as McCain learns what his economic advisors have in mind regarding this new 2 tiered 'flatter' tax alternative. Why the option to stay with the current system?

Obama doesn't have a plan to reform the current tax system. He seeks instead, according to his web site, to make the one we have considerably more efficient and responsible.

In Common
Both Obama and McCain seek to cut wasteful spending, pork barrel spending, and close tax loopholes as well as reduce the tax gap defined as, the difference between what is owed by tax law to the federal government and what is actually collected, currently a gap of $350 billion dollars according to the Obama web site (6).

Not in Common
Again, from Obama's web site, he states he will ensure that federal contracts over $25,000 are competitively bid. Obama will also increase the efficiency of government programs through better use of technology, stronger management that demands accountability and by leveraging the government's high-volume purchasing power to get lower prices. (Sounds like the Medicare Rx drug plan will get revisited for competitive bidding.)

Obama's site also says he will eliminate subsidies to the private student loan industry which has repeatedly used unethical business practices. Obama will also tackle wasteful spending in the Medicare program.

It is interesting to note that McCain's site says he will lower Medicare premiums. This is a puzzlement, since the federal government is already facing trillions in shortfalls of revenue to provide Medicare through the baby boomer retirement years. McCain says he will cut those revenues further by lowering Medicare premiums. Something here does not add up.

More to Come
Both candidates are still hammering out their policy agendas, so this is a work in progress. There will surely be more coming on the differences between the Obama and McCain tax plans as the campaigning goes forward and each attempts crash courses in economics while on the campaign trail.

Source Links
Reuters (1)

On the Issues (2)

The Swamp (3)

NY Times (4)

McCain's Web Site (5)

Obama web site (6)

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This page contains a single entry by David R. Remer published on June 11, 2008 4:49 AM.

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