21 September, 2008

The Candidates and Taxes

This is the nineteenth post in an ongoing series regarding the major Presidential candidates and their views on civil liberties.

This post is about Senator John McCain's (R-AZ) and Senator Barack Obama's (D-IL) plans regarding taxation.

What?  You don't think taxes have anything to do with civil liberty?  Think again.

If you live in a nation with a 0% income tax rate, you're absolutely free. You work for yourself and your family, and while your efforts may support another, you are not owned by them and your job is not owned by them. On the other hand, if you live in a nation with a 100% income tax rate, you are a slave to the government. You work for it and not for yourself.

Where your nation falls on that line determines your freedom. The closer to 0%, the more free you are, and the closer to 100%, the more like a slave you are.

So, where do the candidates stand on this issue?

As always, we'll start with Obama.

Obama wants to end the Bush tax cuts.

It is true that I would roll back the Bush tax cuts on the wealthiest Americans back to the level they were under Bill Clinton, when I don't remember rich people feeling oppressed.

Obama plans to raise the capital gains tax.

Sen. Barack Obama’s, D-Ill., top economic advisors announced on Thursday that he is seeking to raise the capital gains tax rate from 15 percent to 20 percent for those Americans making more than $250,000 per year.

Obama plans to bring back the "marriage penalty".

That's why his plan would not raise any taxes on couples making less than $250,000 a year, nor on any single person with income under $200,000

And that's not entirely true as the following chart shows:

Notice that the effective marginal rates go up even at income levels of $30,000 per year.

What accounts for the higher rates? First, Obama expands the maximum child and dependent care credit for families with one young child from $1,050 to $1,500 and phases down the credit over a longer income range, from $30,000 to $58,000. Throughout this income range, the credit is phasing out at a rate of $30 per $1,000 of income, thus raising the effective tax rate by 3 percentage points. Obama also makes certain credits refundable, which introduces a tax penalty of 10 percent or 15 percent, depending on the income bracket.

Obama wants to subject higher incomes to the payroll tax for Social Security:

Senator Obama got specific today. He’d now subject earnings above $250,000 to payroll tax.

The effect of this would be raise the marginal rate for the highest bracket to 60%.

The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%. People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents -- a reduction of one-third in the after-tax wage!

Obama wants to raise corporate taxes (remember--corporations don't pay taxes, you do!):

Obama proposes funding the tax cuts by closing corporate loopholes, cracking down on international tax havens and increasing the dividend-and-capital-gains tax for the wealthy, he said.

I've discussed Obama's plans for "windfall profits" taxes previously.

Obama wants to mostly repeal the estate tax, although this is at odds with what he's said his entire career:

Sen. Obama proposes a $3.5 million exclusion in 2009 and thereafter, with a top rate at 45%. His plan will "fully repeal the estate tax for 99.7% of households," says Jason Furman, Sen. Obama's economic policy director. "He would add certainty and stability to the tax code by making the 2009 estate tax parameters permanent, exempting estates of up to $7 million for a married couple," Mr. Furman says. The Obama plan "retains the estate tax for the top 0.3% of estates in order to restore fairness to the tax system, helping to pay for a tax cut for 95% of workers and their families."

Obama's plan will lower taxes for some groups, but on the whole it's a gigantic tax increase.

McCain spokesman Brian Rogers pointed to an analysis by the non-partisan Annenberg Political Fact Check that found that the gross tax increase would amount to $103.3 billion in 2011, the largest single-year tax increase since World War II. The Annenberg study pointed out, however, that "most economists" prefer to measure tax changes as a percentage of gross national product, in which case it would be the fifth largest increase since 1943.

Yippee.  Only the fifth largest since 1943, and the study doesn't consider non-renewal of the Bush tax cuts as a tax increase.  That might be true if Obama was running for President of Fantasyland, but he's not.  He's running for President of the United States, and here, getting rid of a tax cut is a tax increase.

So, how does McCain look?

McCain wants to make the Bush tax cuts permanent, even though he originally voted against them.

McCain has simply seen the light and now understands the power that business tax relief has to spur economic growth and innovation. Said J.D. Foster, a former Bush White House and Treasury tax policy expert, now at the Heritage Foundation: "It's logical that he wouldn't be repeating the arguments he made then. We all learn from experience."

Or maybe it's political necessity.  But, I digress.

McCain wants to keep the capital gains tax at its current 15% level.

McCain has pledged to keep the capital gains rate at 15 percent,

McCain has always opposed the "marriage penalty".

Wishes to eliminate marriage penalty and supports marriage tax credits.

McCain has said that he won't raise payroll taxes, but he's also said nothing's off the table.

“He (Obama) wants to raise Social Security taxes,” McCain said, again looking down at his notes. “I want to fix the system without raising taxes.”

...when asked specifically if payroll tax increases were on the table — that “there is nothing that’s off the table. I have my positions, and I’ll articulate them. But nothing’s off the table.”

Take from that what you will.

McCain wants to lower corporate taxes.

Republican White House candidate John McCain will promise on Tuesday to lower corporate tax rates if he wins the U.S. presidency and ease the tax burden on middle-class workers to help revive the faltering economy.

McCain is against "windfall profits taxes" on Big Oil, although he may have been in favor of it previously.

Republican Sen. John McCain criticized Sen. Barack Obama's call for a windfall profits tax on the oil industry on Tuesday, despite leaving the door open to the same idea last month.

McCain's plan generally lowers taxes across the board:

Under John McCain's plan, the rich would pay much less than they do now, the poor and middle-class would pay a bit less

Before I deliver the grades, I feel it necessary to comment on a couple things. First of all, I deliberately did not address the economy or the deficit. I wasn't trying to determine which tax plan was better for America, but merely determine which candidate was generally in favor of lowering taxes and which generally in favor of increasing them.  As for the deficit and the economy, I've seen criticisms of both plans, so maybe that means they're both bad.

Another problem with this post, is that unlike my more recent posts, there was a huge amount of information available, and not always consistent.  Both candidates have changed their views on this subject during the campaign season, so I've tried to get the most recent articles.  Obama released a new tax plan this week, that doesn't raise taxes nearly as much as his previous plan did.  If I'd done this post last week, my Obama section would've been even more critical, I think.

Despite the changes in opinions of both candidates on specifics, their general viewpoints have not changed.  Obama is in favor of higher taxes. There's little doubt that Obama's plan will increase the tax burden on most taxpayers in America (note that I said most taxpayers, not most Americans).  McCain, on the other hand is less easy to define, but, in general, has supported lowering taxes, or at least keeping them where they are.


Obama: D. His newest tax plan brings him up from an F, frankly. I'm tempted to make this a D-, but it is true that most of his tax increases hit a small percentage of Americans. I'm trying to give him the benefit of the doubt because I'm in that small percentage. That graph above makes me very nervous, though, and it should make you nervous too.

McCain: B-. This would be at least a solid B if he were more consistent (or a solid D if he were more consistently bad, I suppose), but his "current" views on the Bush tax cuts, and capital gains taxes push him up.

Taxes: Advantage McCain

Results so far:
  Obama McCain
First Amendment C- D-
Second Amendment D- C-
Third Amendment B B
Fourth Amendment D+ D+
Fifth Amendment D+ B-
Sixth Amendment B B
Seventh Amendment C C
Eighth Amendment C B
Eleventh Amendment B+ B-
Thirteenth Amendment D+ B+
Fourteenth Amendment D+ C+
Fifteenth Amendment B B
Nineteenth Amendment B B
Twenty-First Amendment A- A-
Twenty-Third Amendment A- B
Twenty-Fourth Amendment B B
Twenty-Sixth Amendment B B
Taxes D B-


UPDATE: I've been criticized for not taking into account this report from the "non-partisan" Tax Policy Center. Well, first, either there has never been a good tax plan from a Republican, or this "non-partisan" group is tilted very far to the left. I've watched them for years, and they've never once had anything good to say about a Republican plan that I recall. Second, I think there are several things that the report doesn't take into account. I've stated before that corporate taxes are merely hidden taxes on common citizens and Obama's going to raise corporate taxes. Third, they assume while McCain's plan "could" increase economic growth, that the resulting economic growth would not reduce the deficit. Finally, and following up on that same thought, both plans will increase the deficit pretty significantly unless additional revenue (from economic growth) appears somewhere, and McCain's plan is the only one of the two likely to promote economic growth. Therefore, I think Obama is making promises he can't keep.

History is also against Obama, having voted to increase taxes 94 times. Yes, I know this FactCheck.Org article says that count is incorrect.  I think the FactCheck.Org article is, at best, written by someone who is hopelessly confused.  According to FactCheck, the RNC counts multiple votes on the same bill as having voted multiple times. Wow.  How else would they be counted? Also, FactCheck tells us that the RNC counts voting against tax cuts as a vote for a tax increase.  Shocking. The FactCheck article needs to be fact-checked. As written, it's bunk.

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