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McCain and Obama offer differing tax cut plans(Omaha World-Herald (NE) Via Acquire Media NewsEdge) Sep. 21--The roughly 15,000 Nebraska tax filers who report income of more than $250,000 -- and you know who you are -- find themselves at the center of the great presidential tax debate of 2008. Democrat Barack Obama and Republican John McCain are both pledging to cut income taxes for families, with the Obama plan the more generous of the two for most middle-class earners, the elderly and the working poor. But when it comes to those top-tier earners making more than $250,000, the two candidates differ wildly. While McCain wants to extend President Bush's big tax cuts -- set to expire after 2010 -- for these taxpayers and even pass new tax cuts that largely benefit high-income Americans, Obama wants to hit wealthy taxpayers with significant tax increases. The bottom line? According to one independent study, taxpayers with incomes of $600,000 and above would average about a $49,000 tax cut under the McCain plan but a nearly $94,000 tax increase under Obama. The two candidates' tax plans are largely a reflection of their differing economic philosophies, a distinction that has taken on more urgency given the past week's turmoil in the nation's financial markets. Obama believes his shifting of the tax burden will aid distressed wage earners who have struggled against record energy prices, high food costs and other uncertainty. McCain believes his tax cuts for corporations and the wealthy will spur job growth that will raise all economic boats. There's no question which approach Omaha's Jan Walker favors. The 60-year-old substitute teacher has been a lifelong Democrat, but she was never moved to get involved politically until she heard Obama's economic message. Now she's volunteering for his campaign. "He is constantly talking about looking out for the middle class and poor, the people who really need a break," she said. "I don't believe in McCain's trickle-down talk. He's pandering to the rich, those that don't need any more help." John Cederberg, a business tax accountant in Lincoln, said he understands the political appeal of Obama's redistribution of tax burden to help those now struggling. But he thinks the McCain plan promises more long-term economic benefits for all. McCain's corporate tax cuts in particular would make businesses more globally competitive and give them incentive to modernize plants here, Cederberg said. "It's not a boondoggle for the rich," said Cederberg, a Republican. "It's a focused, economic use of the tax code for his objective." As different as the approaches are, the candidates' plans do have one thing in common: According to the study by the nonpartisan Tax Policy Center in Washington, both would massively expand the U.S. national debt. Neither presidential candidate is proposing a major overhaul of the U.S. tax system. Such plans usually produce a raft of financial winners and losers. But no matter who wins the presidency in November, taxes are sure to be a front-burner topic when the new administration takes office in January 2009. That's because the major tax cuts at the center of the Bush presidency in 2001 and 2003 are set to expire after 2010. Without action by the next president and Congress, taxes will go up across the board for nearly everyone. Recognizing that most people who vote are not wealthy, both candidates not only support keeping the Bush tax cuts for middle- and low-income Americans, but also promise additional middle-class tax cuts. McCain would double the amount of income that taxpayers can deduct for each dependent, a change that would help families but be of no benefit to most single taxpayers and couples without children at home. Obama's plan offers a direct tax credit of $500 per worker and $1,000 per two-worker family, along with additional tax credits directed to homeowners and those paying college tuition. Many of the Obama credits are refundable, meaning they also would be available to workers whose pay is so low, they owe little or no federal income taxes. In addition, Obama would exempt senior citizens with incomes of $50,000 or below from paying federal income taxes. His campaign says that would cut taxes for 60,000 Nebraska senior citizens. But the two candidates diverge widely when it comes to wealthier earners -- in particular, families with federal adjusted gross incomes of $250,000 or above and singles with adjusted gross incomes of $200,000 and above. That's a fairly small slice of the taxpayer base. In Nebraska, fewer than 15,600 tax filers reported incomes of $200,000 or more in 2006 -- about 1.9 percent of all tax filers. Given that the Obama proposal does not kick in for married filers until $250,000, the actual number affected in Nebraska would be somewhat less. In Iowa, 1.7 percent of taxpayers make $200,000 or above. In the United States, it's 2.9 percent. Obama would ratchet rates for those higher earners back to the levels they were before Bush cut them. Obama also would raise their capital gains and dividend tax rates, though not as high as before the Bush cuts. "I'm going to ask for the wealthiest among us to roll back the Bush tax cuts they didn't need and weren't asking for," Obama said recently in New Hampshire. "I think it's time for folks like me who make more than $250,000 a year to pay a little more so people who are struggling to get by get a little relief." Conversely, McCain's plan extends the Bush tax cuts for high earners and proposes other changes that would benefit wealthy taxpayers, including estate tax cuts and corporate income tax cuts. Corporate tax cuts tend to benefit individuals who own stock, whether the dollars are paid out directly as dividends or invested by the company in ways that boost stock value. McCain regularly seizes on Obama's proposed tax increases, not mentioning that they are focused on the highest earners, while touting the economic benefits of his plan. "My tax cuts will create jobs," McCain said in a recent Missouri speech. "His tax increases will eliminate 'em." The bottom-line results of the plans are not surprising. According to the study by the Tax Policy Center -- a joint venture of the Urban Institute and the Brookings Institution -- the average cuts under Obama are at least three times those under McCain for most low- and middle-income taxpayers. Upper-middle-income earners -- those with incomes greater than $100,000 -- on average fare slightly better under McCain's plan. But above $250,000, there is a big difference. While Obama raises taxes for high-income earners, McCain gives those same taxpayers, by percentage, the biggest tax cut of any income group. The numbers produced by the study don't even reflect other proposals the two candidates have talked about on the stump -- proposals that would cause them to diverge even more on treatment of the wealthy. McCain repeatedly has talked about repealing the alternative minimum tax, and his Web site still indicates he would do so. Some wealthy taxpayers would benefit from repeal of the tax, which ensures high earners can't use write-offs to avoid paying any tax at all. And Obama has said he supports having those who make more than $250,000 pay higher Social Security payroll taxes, though he hasn't offered a specific proposal. Currently, workers have payroll taxes deducted from only the first $104,000 of their pay. That means those making less than that pay the tax on every dollar of earnings while those who make above the amount don't. Obama has said that's a fairness matter that needs to be addressed as the nation moves to shore up Social Security. Overall, the Tax Policy Center levies criticisms at both candidates' tax plans, particularly for boosting projected budget deficits. Over the next decade, the study says, McCain's plan would increase the national debt by $5.1 trillion, including interest, and Obama's would boost it by $3.6 trillion. That concerns Joe Bowden, a Papillion resident who works for a defense contractor. He says both candidates need to sit down and watch "I.O.U.S.A.," a 2008 documentary chronicling the perils posed by America's ballooning debt. When Obama and McCain talk about cutting taxes, Bowden asks, do they realize the national debt is now approaching $10 trillion -- up nearly 80 percent since Bush took office in 2001? "They're just telling people what they want to hear," said Bowden, 59. "We're going to pass this debt onto our kids and grandkids, and they're going to be strangled." --Contact the writer: 444-1130, [email protected] To see more of the Omaha World-Herald, or to subscribe to the newspaper, go to http://www.omaha.com. Copyright (c) 2008, Omaha World-Herald, Neb. Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |