Thursday, October 9, 2008
The Tax Foundation has published How Do the Presidential Candidates’ Tax Plans Affect Taxpayers’ Marginal Tax Rates?, by Robert Carroll:
The Presidential candidates have proposed comprehensive tax plans that reshape tax policy in important ways. The two candidates have put forward two very different visions, with Senator Obama's tax plan emphasizing redistribution and Senator McCain's tax plan focusing more on economic growth. A perhaps neglected aspect of their tax plans is how they alter effective marginal tax rates, the amount of tax that people pay out of their last dollar of income. ...
Both Senator Obama's and Senator McCain's tax plans affect marginal tax rates, but for different reasons. Senator Obama's tax plan includes a number of proposals for new or expanded tax benefits that are generally targeted to low- and moderate-income taxpayers. Many of these additions to the "skyline" change taxpayers' effective marginal tax rates in important ways, lowering or raising them, sometimes significantly. ...
Senator McCain's tax plan also affects marginal rates, but for very different reasons. His tax plan includes only two individual tax proposals and only his health tax credit has a material effect on effective marginal tax rates. The McCain health tax credit—$5,000 for family coverage and $2,500 for individual coverage—replaces the current income tax exclusion for employer-based health insurance. The repeal of this exclusion has the effect of increasing taxpayers' taxable incomes, which then pushes some taxpayers into higher income tax brackets. ...
Marginal tax rates will rise to over 50% on some middle-income families if Sen. Obama's tax plan becomes law, and over 40% under Senator McCain's plan.
See charts below the fold: