Taxes: Deciphering campaign promises

Now that the general-election campaign is in full swing, Sens. Barack Obama and John McCain have wasted no time attacking each other’s tax proposals, said Jane Sasseen in BusinessWeek. McCain argues that Obama’s plan—which includes rescinding tax cuts on couples making more than $250,000 and closing corporate loopholes—would hit Americans with the biggest tax hike since World War II. Obama contends that McCain’s plan—which calls for extending Bush’s tax breaks, trimming corporate taxes, and eliminating estate taxes—will benefit big corporations and the wealthiest Americans. “So where does the reality lie?”

By any measure, the differences are fairly stark, said The Economist. “The Arizona senator wants to keep all of Bush’s tax cuts in place, lower the top corporate income tax rate by 10 percentage points, and scale back the Alternative Minimum Tax,” which currently bites into the paychecks of about 4 million Americans. McCain’s tax cuts would indeed be reserved largely for the wealthy, according to the nonpartisan Tax Policy Center. By contrast, “Obama’s plan would redistribute cash to lower- and middle-income Americans.” That means taxing the wealthy more heavily. “Obama wants to raise the top income-tax rate from 35 percent to 39.6 percent—its pre-Bush level—and the tax on capital gains.” He also might lift the earnings cap on payroll tax, which workers currently stop paying on all income over $102,000. This effectively, “along with his other proposals, would increase the top marginal tax rate to over 46 percent of earned income.” Whether either candidate can accomplish all they wish without further increasing the federal budget deficit is another question.

At this point, predicting how either potential presidency will affect your pocketbook is a “tricky task,” said Brett Arends in The Wall Street Journal. But if Sen. Obama wins, you may want to cash in big capital gains in stocks or mutual funds before the end of the year. The top rate on long-term capital gains is now a mere 15 percent. Obama may consider raising it to 28 percent—a rate not seen since 1997. You might also rethink which particular investments are in any IRA and other tax-deferred accounts. “Bush tax cuts favored stocks over bonds.” Higher capital-gains tax rates may mean that you should “swap your holdings around,” and start to hold more stocks in tax-deferred accounts.

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