Paul L. Caron

Sunday, October 26, 2008

WSJ: The Obama & McCain Dueling Tax Plans

Weekend Wall Street Journal: The Election Choice: Taxes; The Difference Between Candidates Is the Widest It's Been in Over Two Decades, by Brian R. Carney:

Dueling Tax Plans When it comes to taxes, the difference between Barack Obama and John McCain is arguably as wide as it's been in a presidential race since Ronald Reagan and Walter Mondale battled in 1984. Sen. Obama is proposing to raise taxes more than any recent candidate, while Sen. McCain wants to cut them substantially. Most of the campaign debate has been over whose taxes would be raised, and whose cut.

In sum, Mr. Obama is proposing to use the tax code to substantially redistribute income -- raising tax rates on a minority of taxpayers to finance tax credits and direct income supplements to millions of others. How much revenue his higher rates would raise depends on how much less those high-earners would work, or how much they would change their practices to shelter their income from those higher rates.

By contrast, Mr. McCain is proposing some kind of tax reduction for most Americans who pay taxes. He says he would finance those cuts by reducing the rate of growth in federal spending.

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Posted by: Nicole Hill | Oct 27, 2008 1:56:18 PM

Obama's top marginal income tax rate is actually the same as Clinton's was: 39.6 percent. (Though there are some complications such as the phase out of personal exemptions and certain deductions, but I'm still not sure how the WSJ arrives at 41.) It was 50 percent under most of Ronald Reagan's administration for comparison.

Also, the capital gains rate is for long-term gains (for both candidates) and is the highest rate. Obama holds the rate at 15 for incomes below $250K. Although in recent days McCain has talked about lowering the capital gains rate, so who knows what he really has in mind.

I should point out that Obama's tax plan has some stronger and widely accepted Keynesian principles behind it. There is some wisdom in making the tax code more progressive in a recession (or depression). Basically if you cut taxes you want to get bigger tax cuts in the hands of taxpayers with the highest propensity to spend rather than save. That means lower and middle income taxpayers, who would receive more tax cuts under Obama's plan, would stimulate more consumer demand in the economy. And that additional consumer demand should also benefit higher income earners in the form of higher capital gains and business incomes. At the same time, the lower debt burden with such a formula should help keep interest rates lower for everyone, important in an economic downturn.

Posted by: Timothy | Oct 27, 2008 8:08:05 AM

Why not an asterisk for the sunsetting Bush rates? Current law is that the rates go back up. And the rates only got a majority to pass on the promise that they would go back up, so it's completely dishonest to call that "current law" without an asterisk. But that's the W$J and taxes for you.

Posted by: | Oct 26, 2008 9:22:37 PM