Month: October 2008

October 29, 2008 12:29 PM | Permalink |

Presidential candidates John McCain and Barack Obama have both proposed to slash taxes dramatically. Senator Obama would give the very richest taxpayers a much smaller tax cut or, in some cases, a tax increase, while Senator McCain would give enormous and costly tax cuts to the richest one percent. On the other hand, Obama would give many low- and middleincome families a larger tax cut than they would receive under McCain’s tax plan.

This paper examines hypothetical households that are representative of four income groups in 2012, a year when most of the provisions of the candidates’ tax plans would be fully in effect if enacted. For each income group, we assume the average adjusted gross income (AGI) for that income group and then examine two types of households (a married couple with two children and a single individual) with that amount of AGI.

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October 23, 2008 12:31 PM | Permalink |

While presidential candidate John McCain has promised to make permanent the Bush income tax cuts for all Americans, his opponent, Barack Obama, promises to make them permanent for almost all Americans. A new analysis from Citizens for Tax Justice shows that only a small percentage of the taxpayers in each state would lose a portion of the Bush income tax cuts if Obama’s plan is enacted. For these very rich taxpayers, Obama would repeal most of the Bush income tax cuts before their expiration date at the end of 2010. For everyone else — for 97.5 percent of taxpayers nationally — all of these tax cuts would be made permanent.

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October 21, 2008 12:32 PM | Permalink |

When the Earned Income Tax Credit was expanded in the Tax Reform Act of 1986, President Reagan, who signed the bill into law, called the EITC “the best anti-poverty, the best pro-family, the best job-creation measure to come out of Congress.”

The EITC provides a tax credit to very low-income working families. The credit can exceed federal income tax liability, meaning that some very low-income families actually receive a check from the IRS. Since pretty much all working people pay federal payroll taxes (and also some federal excise taxes like the gasoline tax) even if they don’t owe income taxes, the EITC seemed like a justifiable break for struggling families.

Leaders of both parties agreed, as did President Reagan. That’s as close to a consensus as anyone finds in Washington. It seemed this was one sort of tax cut that everyone supported.

Until now. Presidential candidate John McCain, who often claims to emulate Ronald Reagan, has lately argued that tax breaks exceeding income tax liability are “welfare,” and has even suggested that they are socialism. While McCain’s views are not entirely clear (since his own health care plan includes a refundable tax credit that would benefit even people without income tax liability) it’s difficult to square his hostility towards Obama’s proposed refundable tax credits with his tributes to the president who supported similar policies.

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October 20, 2008 12:34 PM | Permalink |

The Effects of the Candidates’ Tax Plans on Households at Different Income Levels: ExamplesJohn McCain and Barack Obama both unveiled plans last week to deal with the economic crisis, and both include new tax cuts in addition to those spelled out in their tax plans.

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October 16, 2008 12:37 PM | Permalink |

One of the most passionate, and most confused, debates taking place during this election season is the debate over federal tax policy. Both presidential candidates, Barack Obama and John McCain, are proposing large tax cuts that would reduce federal revenues that are needed to fully fund public services. But the tax plan proposed by Senator Obama is far less expensive, and far more of the benefits are directed towards lowand middle-income people.

Citizens for Tax Justice has estimated the effects of the tax plans of each candidate. The nearby table includes figures for 2012, a year in which most of the provisions in both candidates’ tax plans would be fully in effect.

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October 16, 2008 12:35 PM | Permalink |

During a campaign stop earlier this week, presidential candidate Barack Obama answered a question about taxes put to him by Joe Wurzelbacher, an Ohio plumber who hopes to buy the business that he currently works for. Senator Obama has proposed to allow the Bush income tax cuts to expire for those married couples with adjusted gross income (AGI) above $250,000 and singles with AGI above $200,000. Mr. Wurzelbacher told Obama that, if he succeeds in obtaining the business, his income might exceed $250,000 and that Obama’s tax proposal could stand in his way of achieving the American Dream.

Senator Obama told Mr. Wurzelbacher, as well as those watching the final presidential debate when this question was brought up, that people like him need a tax break during those years when they are working towards the American Dream rather than during the years after they have already achieved it.

In other words, Obama proposes tax cuts for people like Mr. Wurzelbacher during the years when their income has not yet reached $250,000 rather than in the years after their income exceeds that level. Senator Obama’s tax plan would likely give the plumber who is earning perhaps $60,000 or less a year (and saving as much as he can) lower taxes compared to current law and compared to what he would have to pay under Senator McCain’s tax plan. We estimate that only 2.3 percent of taxpayers will be above the $250,000/$200,000 AGI threshold this year, meaning Obama would extend the Bush income tax cuts, and enact several new tax cuts, for all but the richest 2.3 percent. We are not convinced that new tax cuts for over 97 percent of taxpayers would help working America as much as other policy options, but at least Senator Obama makes a logical argument as to why any new tax cuts should be targeted to those who are not among the very rich.

In any event, even if Mr. Wurzelbacher earns $280,000, as he says he hopes to do, he’ll still get a substantial income tax cut under Obama’s tax program. That’s because Obama proposes to extend the Bush reductions in the bottom four tax brackets, which are the rates that apply to almost all of Mr. Wurzelbacher’s taxable income. To be sure, McCain wants to give Mr. Wurzelbacher an even bigger tax cut, but that would save him at most only $900 a year.’

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October 15, 2008 12:39 PM | Permalink |

Americans are in no mood to subsidize the well-off or Wall Street. Presidential candidate John McCain has proposed expanding a massive tax loophole that does both.

The tax loophole for capital gains subsidizes people whose income comes from investments rather than wages, as well as the Wall Street brokers who depend on their business. Senator McCain proposes to increase this loophole by lowering the top income tax rate on capital gains for 2009 and 2010 to a super-low 7.5 percent. Over three fourths of the benefits would go to the richest one percent of taxpayers in 2009, as illustrated in the nearby table.

McCain also proposes to allow taxpayers to count $15,000 worth of capital losses against their other income to lower their income tax liability for 2008 and 2009. (The current limit is $3,000.)

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October 1, 2008 02:47 PM | Permalink |

Americans are in no mood to subsidize Wall Street. This became clear Monday, when the House of Representatives rejected the financial rescue plan that was supported by leaders from both parties as well as the President. Reasonable people can differ on whether the government should step in to prop up the financial system right now. There are progressives and conservatives on both sides of that issue. But what seems indisputable is that Wall Street has mismanaged its affairs and Americans are in no mood to pay for its mistakes.

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