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Two views on taxes
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McCain, Obama: 2 views on taxes

John McCain likes to tell voters that Barack Obama "will raise your taxes." But in reality, Obama's plan - which exempts families making less than $250,000 from any tax increase - would lower taxes for most Americans.

In fact, both Obama and McCain propose tax cuts for middle-income households. But which tax plan covers more middle-income households? And which plan results in a larger cut?

The nonpartisan Tax Policy Center - a joint venture of the Urban Institute and the Brookings Institution in Washington - issued a detailed report last month analyzing the tax plans of the two candidates.

The Tax Policy Center found that under Obama's plan, 90 percent of middle-income households would get a tax cut averaging $1,000. Under McCain's plan, 65 percent would get a tax cut - at an average of $300.

What about very affluent households?

Under Obama's plan, most everyone in the top 1 percent - households with income greater than $600,000 - would pay more tax than today, while under McCain's plan, virtually all those households would pay less tax.

A few numbers are essential to understanding the real tax difference between Obama and McCain for very affluent households.

In 1993, President Bill Clinton and the Democratic Congress kept the top capital-gains rate at 28 percent, but raised the top tax rate on all other income, including dividends, to 39.6 percent.

The Bush tax cuts reduced the top capital-gains and dividend rate to 15 percent and the top rate on all other income to 35 percent.

McCain's plan would preserve all the Bush tax cuts and cut corporate taxes. That's why very affluent households would pay less tax than today under the Arizona senator's plan.

Obama's plan would raise the top capital-gains and dividend rate to 20 percent, and raise the top rate on all other income to 39.6 percent. At the same time, the Illinois senator's plan would not cut corporate taxes. That's why the very affluent would pay more tax than today.

One disturbing finding: The center estimates that under both plans, tax revenue will be substantially less than projected government spending, implying substantial budget deficits and federal borrowing.

The center estimates that under Obama's plan, tax revenue will be a bit more than 18 percent of gross domestic product, while under McCain's plan, revenue will be a bit less than 18 percent.

Today, however, federal spending is about 20 percent of GDP and is projected to gradually rise several points as the population ages and uses more medical care.

Each campaign says it will find a way to keep government spending from rising as projected. But it won't be easy.

Here's the real tax difference between the two plans: Obama gives a larger tax cut than McCain to middle-income households, but raises taxes on the very rich, while McCain gives the very affluent a tax cut.



E-mail Laurence Seidman at SeidmanL@Lerner.UDEL.edu.

http://www.philly.com/inquirer/opinion/20080904_McCain__Obama__2_views_on_taxes.html


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