In its final stages, the presidential campaign is increasingly focused on taxes.
To hear John McCain talk, Barack Obama's tax plans would suck the entrepreneurial life out of an economy that needs all the help it can get.
Obama says that McCain's proposals would reward large corporations, benefit the wealthy and do little for the struggling middle class.
“I think tax policy is a major difference between Sen. McCain and myself,” the Democratic nominee said during the final debate last week, asserting that his plans would benefit 95 percent of Americans. “And we both want to cut taxes, the difference is who we want to cut taxes for.”
Digital Access for only $0.99
For the most comprehensive local coverage, subscribe today.
Republican McCain, in a speech Friday in Miami, accused his rival of using tax policy as a vehicle for income distribution when the goal should be economic growth.
“Sen. Obama claims that wants to give a tax break to the middle class, but … his plan gives away your tax dollars to those who don't pay taxes,” McCain said. “That's not a tax cut, that's welfare.”
According to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, both men's policies — not counting the recently announced temporary measures — would reduce taxes, Obama's by $2.9 trillion over 10 years, McCain's by $4.2trillion.
Here are the highlights of their tax plans:
McCain would make permanent the Bush administration's tax cuts, which are scheduled to expire in 2010, thereby keeping the current tax brackets at 10, 15, 25, 28, 33 and 35 percent.
He also has called for increasing the exemption for dependents by $500 per year until it reaches $7,000 in 2016, thereby reducing taxes for families. Dependent exemptions now are worth $3,500.
Obama would keep the current tax rates for most taxpayers but would restore the higher, pre-Bush rates for individuals making more than $200,000 and families above $250,000, thereby raising the rates in the upper two tax brackets to 36 and 39.6 percent.
In addition, he favors giving everyone below those dollar limits a refundable tax cut amounting to $500 per individual or $1,000 for a family. The beneficiaries would constitute 95 percent of the population, Obama says.
Anyone who files a tax return would be eligible, including people who paid only payroll taxes and had no income tax liability.
This proposal is the prime source of the McCain campaign's allegation that Obama wants to “spread your wealth around,” on the theory that it's being funded by the higher taxes on the wealthy.
Obama wants to eliminate all income taxes for seniors making less than $50,000 per year; McCain has no permanent tax proposals aimed specifically at seniors.
The Illinois senator also would make workers with high incomes pay more in Social Security taxes, although he has not laid out the details.
Both candidates favor measures designed to prevent the alternative minimum tax from affecting more taxpayers that it does now. But neither would eliminate the tax.
Capital gains taxes
McCain advocates retaining the current setup, under which no one pays more than 15 percent in tax on capital gains and dividends.
Obama would raise the rate to 20 percent for individuals making more than $200,000 and families with incomes of $250,000 and above.
McCain wants to phase in a reduction in the top corporate tax rate from 35 percent to 25 percent. He would also allow businesses to deduct the cost of equipment purchases in one year, rather than over a three- or five-year timetable.
Both candidates have plans to make the current research and development tax credit permanent. And Obama has talked of eliminating capital gains taxes for small businesses and startups.
But Obama's plan to increase personal income tax rates at the top of the income scale would raise taxes for a lot of small businesses that net more than $200,000 in a year.
According to Internal Revenue Service data, fewer than 5 percent of such businesses reported enough income last year to be affected by the Obama rate increase.
Under current law, the amount of an individual's estate that is exempt from federal taxation at death varies from year to year, as does the rate. And it disappears entirely in 2010, only to reappear the following year.
McCain wants the exemption to be set permanently at $5million and the tax rate at 15 percent, the same as the capital gains rate.
Obama's plan puts the exemption at $3.5 million and the rate at 45 percent, the current figure. The exemption now stands at $2 million and is set to rise to $3.5 million next year.
In an attempt to help the economy, McCain has proposed cutting the tax on long-term capital gains for 2009 and 2010 from 15 to 7.5 percent. To help investors, he would raise the maximum amount of capital losses an individual may deduct in 2008 and 2009 from $3,000 to $15,000. He'd also lower the tax rate on retirement-fund withdrawals for older people to 10 percent on the first $50,000 withdrawn.
Obama wants to give a $3,000 tax credit to companies for each new job they create in 2008 and 2009. And he would let families withdraw up to 15 percent (with a $10,000 limit) from tax-advantaged retirement accounts through the end of next year without penalties for early withdrawal.
Both would suspend taxes on unemployment benefits.