Thursday, September 18, 2008

Tax Policy Center, Business Week: Obama Offers Middle Class Bigger Tax Cut Than McCain

According to the GOP, the middle class always gets a bigger tax break under a Republican administration than under Democratic rule. This notion is proven to be self-serving and patently false when one examines the tax proposals of Barack Obama and John McCain.

The Tax Policy Center, a non-partisan project of the Urban Center and Brookings Institution, published "A Preliminary Analysis of the 2008 Presidential Candidates' Tax Plans" (6/20/08). They concluded that McCain's plans would benefit the wealthiest Americans while Obama would provide larger tax cuts for the middle and lower classes and raise taxes on the wealthy: 

The two candidates' plans would have sharply different distributional effects. Senator McCain's tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households. Many fewer households at the bottom of the income distribution would get tax cuts and those whose taxes fall would, on average, see their after-tax income rise much less. In marked contrast, Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise.

The chart above from the Washington Post outlines the average change in taxes proposed by the candidates according to family income. For a larger version of the chart, click here.

Obama's plan is also a greater stimulus to the economy in general:

The impact of the tax code on economic activity under each candidate's policies would differ in several important ways. Under Senator McCain's proposed policies, the top marginal rates (35 percent on individual income and 25 percent on corporate income) would be significantly lower than under Senator Obama's plan (39.6 and 35 percent, respectively). McCain's reduced individual and corporate rates could improve economic efficiency and increase domestic investment, but the larger future deficits would reduce and could completely offset any positive effect. In contrast, Senator Obama's proposed new tax credits could encourage desirable behavior, particularly if the childless EITC and payroll tax rebate encourage additional labor supply among childless low-income individuals. However, he would also direct new subsidies at an already favored group-seniors-and an already favored activity-borrowing for housing-which could probably be better directed elsewhere.

Not known for a liberal perspective, Business Week, in "Obama vs. McCain: Taxing and Spending" 6/12/08), gave the "first round to Obama." In the article, Len Burman, former Treasury tax official and current senior fellow at the Urban Institute, states, "It's just flat wrong" to say people would do worse under Obama. "Most lower- and middle-class people would pay less taxes under Obama than they would under the proposals being put forth by McCain." In addition, Obama's plan would leave the government with much more revenue than McCain's: 

Indeed, when compared with current tax policy, his proposals would actually increase revenues coming into government coffers. Although he has promised tax cuts to many middle- and working-class families, along with the elderly, the TPC concludes that those cuts would be offset by his plans to increase taxes on high-income families and to close corporate tax loopholes. Together, those moves would bring an estimated additional $734 billion to the Treasury over 10 years, according to the Tax Policy Center study.

By contrast, even using the more favorable comparison, McCain's proposed tax changes would still leave the Treasury coming up short. According to the study, McCain's combined proposals would slash tax revenues by an estimated $253 billion over the 10-year period compared with what would come in under current tax policy.

In the midst of two wars and the worst deficit in American history, McCain follows the Bush model by offering more tax cuts to those who need them the least. He's captive to the "trickle-down" ideology that has clearly failed. Instead of more jobs and a thriving economy that its proponents state will result from "trickle-down" regressive taxation, we're seeing rising unemployment and economic turmoil. In contrast, Obama offers a progressive tax plan that will benefit the vast majority of Americans and provide the government with more in its coffers. The difference is stark: more of the same under McCain against a return to fiscal sanity under Obama.

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