Obama v. McCain: Who Has the Best Tax Package For You?

After months of speculation, the field is finally set. The US presidential race is down to Republican candidate John McCain and Democratic candidate Barrack Obama. Both will spend the next five months talking about the issues important to the American people. Tops on their list? The economy.

The tax plans for McCain and Obama could not be more different. Here’s a brief rundown of where they stand:

– – –

John McCain

McCain plans to make most Bush tax cuts of 2001 and 2003 permanent.

Rather than eliminate the federal estate tax, he proposes raises the personal exemption from $1 million to $5 million (the current system increases the exemption to $3.5 million but it will sunset to $1 million in 2011).

In contrast, McClain plans to eliminate the Alternative Minimum Tax (AMT) altogether.

McCain would also introduce an alternative two-rate income tax code that claims would simplify the system. Taxpayers would choose which code to use.

McCain would raise the limits on tax rates, which would shift taxpayers from the 28% rate to 15%.

McCain would reduce the corporate tax rate and close corporate tax loopholes. He estimates that the latter would save taxpayers $151.7 billion over five years.

– – –

Barrack Obama

Obama would keep the Bush tax cuts for all but those earning more than $250,000, a group that Obama refers to as the wealthiest 1% of Americans.

Obama would push for more tax cuts for the middle class resulting in about $1000 per family. He would introduce a homeowner’s credit for those taxpayers who do not itemize. Seniors making less than $50,000 would be exempt from tax under Obama’s proposal.

Obama is also eying an increase in the capital gains tax rates. He has discussed increases to between 20 and 28% – from the current 10 to 20% range.

Simplification of the tax code is also a priority. Among his suggestions are pre-printed tax forms with wage information already included.

– – –

What do you think? Does either plan appeal to you? Vote in the poll in the sidebar and leave your comments below!

(Image: Newscom)

Comments

  1. Ashley

    I think that the tax cuts for the wealthy should be eliminated all together…If anything the wealthy should have to pay more money then the middle class and lower class. If ya’ll didn’t know we don’t have very much money. The rich get all the breaks and they are rich they don’t need them. Think about the single mothers like me who work for a living trying to bring up or children in this world. The wealthy in this country always seem to come out on top. It just makes me sad.

  2. Ashley

    I think the tax cuts for the wealthy should be eliminated all together. I don’t know why it is that they get special treatment. They are rich they don’t need tax cuts. If anything they should pay more. Middle class and lower class people don’t have the money to pay these taxes. If you didn’t know we are poor. Tax cuts should go to us. Maybe the president should think about single mothers trying to bring up our children and not the rich man.

  3. Jim Howard

    Wealthy people already pay almost all of the income tax.

    Only about 50% of wage earners pay any income tax.

    Low wage earners pay no income tax and still get ‘refunds’, often very large ones via EITC.

    The top 10% of wage earners pay something like 85% of all income tax.

    I think we should just stick with the tax brackets we’ve had under President Bush. The government is collecting record levels of income tax receipts. Don’t fix what isn’t broken.

    Don’t forget that both candidates favor an insane ‘cap and trade’ tax program on energy of all forms. We’ll need all the money we can get to pay the $2/gallon increase in gas tax and the 50% increase in home heating and air conditioning bills this brand new tax monster is going to demand.

    If we are unfortunate enough to not have a public sector job then we need to save for the day we are laid off, since the proponents of this insanity admit it will cause at least a 4.8% decrease in GDP.

  4. Matty

    i think we should make another 20,000 or so small little tweaks here and there to the existing tax system based on a few people’s personal views. That way, tax accountants and tax attorneys can spend their truly meaningful lives finding ways around the 20,000 new rules for their rich clients.
    or……..
    ww.fairtax.org

  5. Caroline

    I’m a CPA and tax preparer, and I see a lot of tax returns for individuals with income in excess of $250,000, and they generally pay a lot of tax. I have clients that routinely write $200K+ checks to the IRS. I cannot think of any “tax cut” available to the wealthy that is not also available to the middle class or poor.

    In addition, the list of tax deductions that phase out for couples making over $150K is pretty extensive – things like the child tax credit, stimulus payments, etc. are not available to these individuals. In addition, itemized deductions start phasing out over $110K. So, they’re unable to fully utilize deductions, such as mortgage interest, available to lower income individuals. A married couple making $500K will pay approximately $165K in tax (or 35% of their income); a married couple making $80K will typically pay less than $10K (or 12% of their income).

    There are a lot of “hype” articles that like to talk about all of the tax cuts available for the wealthy, but they are rarely specific. The only time I see wealthy people with small tax liabilities are the times I see wealthy people attempting to cheat on their taxes – which does happen.

    I wish the IRS would focus more on auditing and reduce the cheating.

  6. Kelly

    Hmm. I can’t say as I agree, Caroline.

    For one, as the tax system is progressive (as you well know), everyone pays the same % at each level of income so it’s misleading for people to assume that the wealthy pay more across the board. Everyone pays the same amount of tax (taking special considerations out of the mix) on the first $10,000 of income, the next $50,000, etc.

    I ran the numbers with the 2008 charts and assuming no credits or deductions, your $80k couple would pay closer to 16% of taxable income (not gross) and your $500k couple would pay closer to 30%. That’s a 14%, not a 23% gap. The top tax bracket is 35% – no one pays a flat 35%.

    But numbers aside, I have a lot of wealthy clients, too. The reality is that the wealthy are able to take advantage of a lot of credits and deductions to shrink their taxable income. They stash away large contributions in retirement plans and deduct interest on second homes. They defer income in ways that are difficult for the middle class to accomplish (life insurance trusts, favorable tax shelters, stock options, etc).

    And let’s not forget that in addition to federal income tax, of course, Social Security contributions – a huge chunk of most paychecks – are eliminated just after $100,000.

    I’m not saying that the wealthy don’t pay a staggering amount but I also don’t agree that they are paying a phenomenally disproportionate share under this administration. The brackets are too compressed for that to happen (pre-Reagan, different story).

  7. Caroline

    In response to Kelly, your conclusion is absolutely correct – if you multiply income by the %’s on the tax tables. However, the higher income couple is subject to the Alternative Minimum Tax that effectively eliminates the lower tax brackets. (This is not on the tax table.) Therefore effectively all of the higher income family’s income is taxed at the highest tax bracket (35%).

    As for tax credits, you are correct that many middle and lower class families cannot afford to take advantage of these. However, contributions to retirement plans are capped – wealthy people are not allowed to contribute over a certain amount. Lower income taxpayers are able to defer a much larger overall % of their income (while receiving a tax benefit) than higher income. Self-employed taxpayers are not able to contribute to IRAs if their spouse has a 401(K) or other employer-sponsered retirement plan. There are other options available for the self-employed, however, labor laws require that business oweners provide the same benefits for their employees.

    Income from stock options is currently taxable income to the employee.

    While Social Security contributions do phase out after $102K, this is a completely different tax. I suspect this will change as Social Security stuggles to meet their obligations.

  8. Christopher Ganiere

    Our federal government should just cut spending so we can eliminate the tax code and all the “fairness” arguments. When no one pays income tax, we will all be better off.

    No earmarks, no foreign aid, no block grants (let states take care of their own), no departments that publish studies, to tax credits for research, …

  9. James Hutchingson of Alabamba

    I think we shuld keep duh bush tax cuts bcuz we pa y less and we dont give money to liberalz

  10. James Hutchingson of Alabamba

    I think we shuld keep duh bush tax cuts bcuz we pa y less and we dont give money to liberalz.

  11. Ron

    As a retiree, I favor Obama’s tax cut. Being on a fixed income makes meeting daily living expenses very difficult for retirees. With gasoline, food and utilities increasing each year working people should think of their parents and the elderly.

  12. Ron Spohr

    I disagree with Mr. Howard when he claims the system isn’t broken. It has more patches on it than an old inner tube. The current income tax system needs to be eliminated.

    I firmly believe that the fairest tax would be a national sales tax. If you can afford to buy a Lear jet, you can afford to pay the tax.

  13. Jim Howard

    When I said ‘I think we should just stick with the tax brackets we’ve had under President Bush’ that is what I mean isn’t broken.

    Certainly the tax code could use a lot of simplification, I’m just addressing the question of the basic brackets. The basic brackets we have are just fine.

    As far as a federal sales tax goes, I’m fine with that as long as the 16th amendment is repealed first.

  14. Don & inda Horton

    For the little guy, the one who has been taking the economic hit, since the economy went south, it is obvious that the Obama tax plan is the best. It means the little guy will get some relief.

    Of course it also means that the guy making $250,000 will have to pay more in taxes, but then again at least he has $250.000 to play with. Thats something I can only dream about.

  15. (continued)Don & Linda Horton

    That being said, there are still other major issues of concern, even to the little guy. There are questions regarding abortion, partial birth abortion, illegal immigants, National Security, the war in Iraiq, The over all stand on the Mid-East, especially the security of Isrial.

    The United States was founded on the Judo Christrian ethic. While it is true that everyone has the right to worship as they see fit, there should never be any one group that dictates which religion one has to worship. In other words freedom of religion is a foundation of The United States.

    Obama seems to be saying we should follow in the footsteps of Europe. This country was born as a result of a conflict with Europe. I might add that Europe is more into Socialisim, is that the Obama proposition?

    Christrans are between a rock and a hard place. They have to think about these issues in a Christrian context as they come to their decision as to whom the next Presidient will be. Have no doubt, to Christrians, these are the real issues.

    These are just some of the questions that Americans are asking. They feel that the future of this Nation, the very foundation of The United States centers on this election. While their minds are not yet made up, you can bet Americans are watching.

  16. Bala

    Did Obama clearly state what shifting the tax burden to the wealthy mean? What is he proposing as the tax % for those with income above $250k?

  17. Kelly

    Bala,
    A lot of this is semantics (aren’t all politics, really?) when it comes to raising or lowering taxes.
    Obama’s plan to “raise” taxes has a lot to do with eliminating cuts that were made previously. Specifically, this applies to adjusting phase outs which would eliminate tax preference items for top producing households, revert capital gains and dividend rates back to pre-Bush rates and restore the top tax brackets.
    The non-partisan Tax Foundation has a detailed description of both plans. Read my post here: http://www.taxgirl.com/mccain-v-obama-on-tax-is-it-really-just-the-lesser-of-two-evils/ You’ll find a link to the entire report there.

  18. Kelly

    Don & Linda Horton,
    I think we can always learn from other people and other countries – just because we have differences with some countries doesn’t mean that there isn’t some good stuff to be gleaned from them.
    Specifically, 7 of the top 10 countries in last year’s standard of living index were from Europe (other 3: Australia, Japan and Canada – the US fell 4 places to #12). The rating was based on a number of factors including life expectancy, literacy and GDP per capita. So, clearly, other countries are doing something right!

  19. Nobama

    The wealthy give a lot to charity, provide jobs to many people and pay a majority of the taxes. Don’t let liberals get in the way of capitalism and American Entrepeneurs. It is Capitalism, Freedom and Liberty that made the US the best damn place in the history of the world in only 200+ years of existence. What has liberalism ever accomplished?

  20. Andy

    The easiest tax system would be to have a flat tax. Everyone pays the same percent. The need for filling out income tax forms at the end of the year would be gone. The IRS can concentrate on those that don’t pay. Anyone else from the IRS that is no longer needed can be used elseware in the government.

  21. Tony Randell

    The rich will take kindly to Obama playing Robin Hood with their hard earned money. Your doctors, lawyers, businesspeople – these are the ones Obama is targeting. They will pack their bags and head to where their skills are paid the most. Could you imagine the effect of a US brain drain?

    Obama will send the US into certain recession, and when the income of the rich is reduced because of the faltering economy, they won’t have that quarter-million dollar income to tax anymore. ie: no one for Robin Hood to steal from anymore. ie: everyone loses.

    Hauser’s Law will kill Obama, and it’s something US citizens have to see to believe, I think. Right now it’s all about instinct. “Yeah, let’s make those fat cats pay. They have enough money anyways. What’s a couple of grand to them”.

    What you don’t immediately think about is the benefit of the rich having expendable income. The trickle down benefits of having money in the hands of people who can do great things with it.

  22. Pingback: The Middle Class in America Isn’t Happy

  23. george

    The top 1% of the country own approximately 90% of all the wealth.
    However they pay nowhere near 90% of the tax for the country.
    People always say these people pay MOST of the income tax – it is a ridiculous point becuase COMPARED TO THE WEALTH THEY CONTROL that is after PROTECTED BY THE MILITARY they DON’T pay their fair share. Most of these people’s INCOME is EXCLUDED from the definition of INCOME but instead called Capital Gains or Dividends.

    If they own 90% of the wealth they should pay 90% of the taxes.

    “Income ” tax figures are irrelevant.

    In a perfect world you would never tax INCOME becuase people making INCOME are actively contributing to the economy that year. as opposed to dividends or capital gains which are simply PASSIVE investments (usually extremely subsidized by government tax policy)

    Yet the Republican tax policy is just the opposite – minimize taxes paid by those not earning income but simply inheriting or living off passive dividends.
    Republicans want to reward the lucky sperm club members who aren’t WORKING while putting all the emphasis on taxing INCOME which is made by the people actually WORKING.

    Adam Smith wouldn’t like it.
    No real conservative or free market or free enterprise believer thinks you should tax those contributing while letting those who simply are clipping coupons or inheriting wealth never pay taxes.

    the Republican party has become a modern Tory Party. for those of you who don’t know what that means it means they believe in the Kings interests. What is a king? Kings inherit wealth and own all property and simply charge land rent to those actually working and producing while never letting the serfs ever own anything. Kings don’t actually work. they just own and control.
    they never pay inheritance tax . They don’t have income so they don’t pay income tax.

    That pretty much describes the modern Royal Republican Tory party of today .

  24. george

    Jim said
    >George, do you understand that raising the top >rates will >decreasegovernment?

    This is not true. This is often cited as fact but in fact is only proven in the reverse. In the past higher tax rates when lowered caused people to stop using tax shelters which where simultaneously eliminated and therefore claim more income thus producing ore revenue.
    The Laffer curve is a hypothesis and not even claimed as true at all levels of taxation. (if it was then a marginal tax rate of zero would produce the most tax revenue – obviously not true.
    Furthermore Tax revenues for this country have been highest when we had some of the highest marginal tax rates in history such as in the 50’s 60’s and 70’s when the top rates were over 70%
    . The 50’s are usually thought of the hey day of America and top rates were in the 70’s.

    furthermore the lower rates during Reagan’s years were accompanied by an artificial accelerated depreciation schedule in real estate combined with leverage loan accounting which created huge false wealth and income through real estate limited partnerships (which resulted in overbuilding and later real estate and S and L collapse.)
    The increases in tax revenues during Reagan’s term were a result of that not the lower of the top rate. In fact had Reagan not lowered the top rate and still changed the real estate accelerated depreciation rate the tax revenues would have been even higher.

    People who make money don’t stop making money becuase they have to pay higher rates. People always like to make more money period.

  25. Kenneth Anguh

    I think leaving the rich and not cutting taxes from them is not a good thought for such world economy.Taxes cut should increase on the rich for they are the ones who make the economy on the ride.McDonalds and all those other big guys should know that a better tax system is that where the rich pay higher while those are really struggling to make living pay less.
    I bet you all Americans that,if it happens like,that,then you shall see the economy boom but in days and not months or a year.

    THANXX !!!

  26. Pingback: Ask the taxgirl: How much will Obama’s tax plan cost me? | taxgirl

  27. Jane

    The simplest way for fair taxation is to eliminate the current system of companies taking taxes out of paychecks and to require individuals to send in their tax debts every month or quarter. Then everyone can clearly see how much they are paying. That would be a real reality check. People only think in term of their “take home pay” and not in how much these taxes are taking away. Consumers ask, “How much is my monthly payment,” instead of “What is the total cost?” Most Americans work the equivalent of half the year to pay all their taxes. When you consider state taxes, sales taxes, taxes on gasoline, taxes on utilities, etc., the percentages named in these articles are not accurate. Since we retired and have to pay estimated quarterly taxes because our pensions do not have taxes taken out, it has been a real eye opener as to what we are paying and we are not anywhere near rich.

  28. Jane

    And add real estate taxes and personal property taxes. The list of where and how we’re taxes is endless, so just looking at federal tax brackets does not show the whole picture of what we have to pay.

  29. Stan

    The Bush policies have made such a mess that our Federal budget and tax problems are near-unsolvable. The national debt is so large now that we’re going to have to keep cutting programs just to keep up with increased interest each year. We cannot keep functioning if we keep that trend up. If we don’t deal with some of the large problems our country faces, it will be time to look for another place to live.

    I agree with Jane, having to send a quarterly tax check in lieu of withholding would open taxpayers’ eyes.

  30. Terry

    More taxes = less money in consumer pockets which = less consumer spending.

    More taxes = less money collected by the government (the Laver Curve)

    More taxes in a recession or slowing economy = even a more slowing economy

    I live in Md. Take a look at our state, taxes have increased and the state is 377 million in the whole. Obama will do to the country as O’Mailey has done to Md

    Remember people spend / buy and sell more when taxes are low and they have more money in their pocket. This is not my opinion it is fact.

  31. bernie

    George, you wrote, “People who make money don’t stop making money becuase they have to pay higher rates. People always like to make more money period.”

    Actually they don’t stop making money, they just move to where there are lower taxes. The British Brain drain happened because Britain was taxing their best and brightest to much.

    Many American corporations moved their operations to Ireland where the corporate tax rate is 1/3 of ours. Where did you ever get the idea that rich people tolerate staying in a place where they are getting fleeced?

    Sure the poor shlub who makes less than 100 grand a year isn’t going to move overseas, but certainly big corporations and the top 1% who pay 40% of all income taxes can easily change domiciles and certainly will when the burden becomes unbearable.

    I certainly will not be paying any increase in taxes by moving some of my company’s operations overseas. That’s what happens when a “fake” office is cheaper than increased taxes. I don’t mind paying my fair share, I certainly do mind paying your share.

  32. charles

    Obama’s tax plan will destroy the Social Security system.

    Obama says his income tax plan will lower taxes for 95% of Americans. There is just one problem with this, 40% of Americans already pay no income tax. Obama’s response to this is that these people pay Social Security tax. Well, that’s not income tax, but a contribution to their retirement plan. So if he wins and implements his tax plan, for the first time in the history of Social Security, 40% of the people who will get retirement benefits will have paid nothing for them. Social Security will then loose all pretext of being a retirement plan, and will become a national welfare program.

    This will cause Social Security to lose public support in a massive way. Leave Social Security contributions out of income tax plans. If you take some peoples income taxes to pay others Social Security taxes, Social Security will be destroyed forever.

    http://strategicthought-charles77.blogspot.com/2008/10/obamas-tax-plan-will-destroy-social.html

  33. Joe

    The Obama tax plan targets the very people who drive our economy. What he is saying is”If you work hard and are successful I will tax you. If you sit on the couch I will pay you”. This discussion of class warfare is nonsense. We have reached a point where more people will draw out of the Treasury than will pay in. This system WILL collapse under it’s own weight.

  34. Richard

    Ashley – I don’t believe you realize that 80% of the taxes are paid by the top 20% of the taxpayers (quote from the “New York Times”. So it goes to commonsense that when a taxcut is given it needs to go to the ones who are doing the paying. Nearly 40% of wage earners pay no income tax. So if you are not paying income taxes, how can one play less than ‘Zero’. Below is a story that gives a great analogy of our tax code.

    It seemed that 10 men decided to have a business lunch once a week. They always met in the same restaurant and the bill was always, $100.00, for all 10 men. If each man was responsible for his share of the bill that would be, $10.00, each. The men decided to divide the bill based upon their ability to pay (using the progressive structure of the tax code). Using this formula the following payment arrangement was worked out based upon income.

    Men 1-4 who made the least amount of money paid nothing.

    Man 5 paid $ 1.00

    Man 6 paid $ 3.00

    Man 7 paid $ 7.00

    Man 8 paid $12.00

    Man 9 paid $18.00

    Man 10 paid $59.00

    After several weeks the owner of the restaurant told the men that because they were such good customers he was reducing the bill by $20.00. Their dilemma was how to divide up the, $20.00. If each person got the same amount then the first 4 men would be getting money back but they never paid anything for the dinners. After much discussion and no resolve the owner offered the following suggestion which they all agreed to.

    Original Payment-New Payment-$ Amount Saved-% Saved

    Men 1-4 paid $ 0.00 $ 0.00 $0.00 0%

    Man 5 paid $ 1.00 $ 0.00 $1.00 100%

    Man 6 paid $ 3.00 $ 2.00 $1.00 33%

    Man 7 paid $ 7.00 $ 5.00 $2.00 28%

    Man 8 paid $12.00 $ 9.00 $3.00 25%

    Man 9 paid $18.00 $14.00 $4.00 22%

    Man 10 paid $59.00 $50.00 $9.00 15%

    Once outside the men began to argue about the settlement. Man 5 said he only got, $1.00, while Man 10 received, $9.00. Men 1-4 were upset because the received nothing. They said that the cut only benefited the rich and the poor got nothing. They were upset so they beat up Man 10 and left him. The next week they met for lunch as usual except man 10 did not show up. When the new bill arrived the men discovered that between them they did not have enough money to pay even half of the bill.

    Remember take to much from the rich they will find a new and friendlier place to have lunch.

Leave a Comment