What the Obama and McCain Plans Would Mean for Real Taxpayers

[Joanne98]

by Howard Gleckman on Fri 20 Jun 2008

How will ordinary families be affected by the tax plans of John McCain and Barack Obama? To get some answers, I asked Greg Leiserson, TPC’s crack modeler, to develop some examples.

The results mostly track what we already know—that McCain would cut taxes somewhat for nearly all, and a lot for the very wealthy, and Obama would cut taxes substantially for low- and moderate-income families and raise them dramatically for those in the upper brackets. But there are also some surprises.

Before I look at how the tax cuts would work for some typical families, keep in mind that TPC allocates a share of any changes in corporate taxes to individuals. Thus, their tax liability not only includes what happens to their income taxes, but also to their share of corporate taxes. Economists do this since companies don’t actually pay tax, the people who own the companies do. (Workers pay some share too, but since no one can agree on how much, TPC allocates all the tax to capital).

With that out of the way, here is what the numbers look like:

A single mom, with one child, making $15,000-a-year (in adjusted gross income) would get a $17 tax cut from the McCain plan, but see a $500 reduction from Obama, thanks to his new work credit.

A newly-married young couple with no kids, making a combined income of $50,000, would get a $36 tax cut from McCain, but a tax reduction of about $1000 from Obama. The big difference again: Obama’s work credit.

By contrast, think about the classic suburban 1950s sitcom family, with two kids but only one wage earner, who makes $75,000. Ward and June Cleaver would do a bit better under McCain, who would cut their taxes by $800, while Obama would trim their taxes by only about $500. McCain’s increased dependent exemption for Wally and the Beave trumps Obama’s work credit.

Now, let’s look at a two-lawyer family, making $200,000, with one child. McCain would give them a tax cut of roughly $7000, while Obama would trim their taxes by about $5000. The big reason: each candidate would patch the Alternative Minimum Tax.

A married baseball player who takes home $2 million and has one child might want to go to bat for McCain, who would give him a tax cut of more than $30,000. Obama would raise his taxes by $135,000. Talk about getting one in the ear.

For seniors, the pattern is a bit more surprising, since Obama has been touting his tax cuts for the elderly. Obama would give an unmarried senior making $35,000 a tax cut of $3000, which would wipe out her tax bill. McCain would give her a tax cut of about $250.

But now let’s look at that her neighbor, who makes $75,000 from her Social Security, pension, and other income. Obama would actually raise her taxes by about $600, while McCain would give her a $600 tax cut.

The same thing would happen to a very poor elderly couple making just $10,000. Obama would raise their taxes by $150, while McCain would cut them by about $170.

Of course, these are all averages. Some families might benefit more and others less. But this should give you a pretty good idea of the winners and losers.

http://taxvox.taxpolicycenter.org/blog/_archives/2008/6/20/3754964.html

[madmom]

1. was this a typo?.....

"The same thing would happen to a very poor elderly couple making just $10,000. Obama would raise their taxes by $150, while McCain would cut them by about $170."

if not I don't understand!:shrug:

[Joanne98]

5. No! The plan isn't perfect . But they never are.

[blondeatlast]

6. I read it on the site, it refers to the paragraph above, but not very well.

With both scenarios, Obama's plan would raise both taxes and McCain's would lower them but I'm suspicious there of the interpretation and math. :shrug:

[babylonsister]

2. I hope someone will explain that last one to me:

"The same thing would happen to a very poor elderly couple making just $10,000. Obama would raise their taxes by $150, while McCain would cut them by about $170."

Why? I don't understand where the writer came up with this. What category does this poor elderly couple fall into that their taxes would be raised?

[Joanne98]

7. I don't know. Maybe they can fix that....

Making up 300 hundred dollars shouldn't be that big of a deal.

[blondeatlast]

3. I'm happy to ease the burden on my neighbors. Mine will go up a bit under Obama;

if it helps the struggling-to-keep-their-house family down the street, I'm happy to help.

[Vinca]

4. Obama says no taxes on seniors making $50,000 or less. nt

[blondeatlast]

8. Yeah, the last two paragraphs are head-spinners; I don't think it's an accurate

interpretation.

[Joanne98]

9. Maybe this site is wrong about that.

[MasonJar]

10. An elderly couple living on $10,000 can certainly not afford a tax

period, much less a raise. This should be forwarded immediately to Obama; if accurate, he needs some adjustments to his plan. Please some DUer with more computer savvy than I have send this to the Obama camp.

[Joanne98]

11. Here's the full report....

http://www.taxpolicycenter.org/UploadedPDF/411693_CandidateTaxPlans.pdf

snippet>>>
The two candidates' plans would have sharply different distributional effects. Senator McCain's tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households. Many fewer households at the bottom of the income distribution would get tax cuts and those whose taxes fall would, on average, see their after-tax income rise much less. In marked contrast, Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise.

The impact of the tax code on economic activity under each candidate's policies would differ in several important ways. Under Senator McCain's proposed policies, the top marginal rates (35 percent on individual income and 25 percent on corporate income) would be significantly lower than under Senator Obama's plan (39.6 and 35 percent, respectively). McCain's reduced individual and corporate rates could improve economic efficiency and increase domestic investment, but the larger future deficits would reduce and could completely offset any positive effect. In contrast, Senator Obama's proposed new tax credits could encourage desirable behavior, particularly if the childless EITC and payroll tax rebate encourage additional labor supply among childless low-income individuals. However, he would also direct new subsidies at an already favored group-seniors -and an already favored activity-borrowing for housing-which could probably be better directed elsewhere.