Taxes: Deciphering campaign promises

What McCain's and Obama's tax proposals really mean, how they differ, and how they might affect investment decisions.

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.

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