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Obama Offers Another Hand To Businesses, More Tax Breaks

From NPR.com:

President Obama is proposing some new tax breaks he hopes will encourage businesses to expand and get the economy moving again. The President is set to unveil the tax breaks along with a plan for $50 billion worth of infrastructure investment in a speech about the economy on Wednesday, but some details about the tax breaks are already being reported.

One proposed tax break that's receiving a lot of attention, would allow business to write off 100 percent of new capital investments, money spent on plants and equipment, through 2011. Companies can already deduct these expenses, but currently they have to wait longer to do so. Allowing businesses to take the deduction upfront, will mean they have more cash on hand to spend or invest. Economists at the White House estimate that the plan would cut business taxes by around $200 billion over two years.

The President is also going to propose increasing and making permanent tax credits for research and development. The research tax credit is typically extended by Congress year after year, but some gaps have left business groups frustrated.

Democrats propose tax hikes in response to Schwarzenegger's fiscal plan

Party leaders have been getting together in response to California Governor Arnold Schwarzenegger’s proposed fiscal plan, which I wrote about here. Legislators agree that there needs to be a way to increase revenue to close the $19.1 billion deficit, but how that will be done is always the argument.

Governor Arnold Schwarzenegger’s “spending blueprint” proposes eliminating California’s welfare program and cutting other state services. Democrats are responding by making a proposal of their own: generate billions in the form of new taxes.

The democrats’ detailed $5 billion plan calls for taxing oil companies, borrowing from the state’s recyclable bottles and can deposits, delaying corporate tax breaks, increasing personal income taxes, increasing vehicle license fees and raising taxes on alcohol. In order to pass, the plan would require at least some Republican votes. Republican legislators are expected to reject these tax hikes.

According to the Los Angeles Times, Schwarzenegger's office immediately dismissed the Democrats' proposals. "It is unfortunate that the Democrats' first instinct is to raise taxes," said Schwarzenegger spokesman Aaron McLear.

Read more about the proposed plans here.

The Tax Proposals Outlined in Obama’s State of the Union

Last week, President Obama delivered his State of the Union to Congress and the American public. He covered dozens of controversial issues, including the repeal of Don’t Ask, Don’t Tell and the recent Supreme Court ruling on campaign finance laws. However, the main focus of his speech was jobs, the economy, and taxes. For my readers who might have missed the live coverage, I have broken down all of the tax proposals Obama outlined during his 70-minute speech and examined the facts behind each one.

Cut Taxes for 95% of Working Families

Towards the beginning of his State of the Union address, the President bragged that his administration made a wealth of tax cuts. “We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college… we haven’t raised income taxes by a single dime on a single person. Not a single dime.”

For those of you who watched the speech live, you will remember that Obama joked that he was hoping to get applause from more conservative representatives for this statement. However, the lack of applause might be due to the misleading nature of his declaration. Although he has not directly raised taxes on these working families, the health care reform bill his party supports contains dozens of projected tax increases and fees on millions of taxpayers.

Business Tax Break Extension

Small business tax incentives and the middle class were common themes in the President’s speech. One of the largest cut’s Obama mentioned during his speech was his plan to extend a set of tax breaks that will allow businesses to write off investments in equipment (such as tractors, wind turbines, solar panels, and computers) more quickly. The 50% bonus depreciation tax break would total $38 billion in savings in the 2010 alone, which would represent an estimated 13% of all corporate tax receipts expected this year.

Elimination of Capital Gains Taxes on Small Business Investment

“While we’re at it, let’s also eliminate all capital gains taxes on small business investment,” Obama explained. This is a pretty drastic change from his campaign promise of doubling capital gains taxes, but the majority of economists support his proposal.

$30 Billion for Community Banks

Another part of the President’s plan to help small business owners is to increase the amount of credit available to them. “I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.”

Incentives to Stay in the USA

While discussing clean energy job creation, Obama also explained his intention to encourage “businesses to stay within our borders.” “It is time to finally slash the tax breaks for companies that ship our jobs overseas,” continued Obama, “and give those tax breaks to companies that create jobs right here in the United States of America.”

Middle-Class Tax Cuts

The President asserted that his administration would extend middle-class tax cuts, but in a cleverly worded sentence said they would “not continue tax cuts for oil companies, investment fund managers, and those making over $250,000 a year.” This is an obvious reference of his intention to let the Bush tax cuts expire, which would essentially raise taxes on couples making over a quarter of a million dollars per year.

Wall Street and Bank Fees

“To recover the rest {of the TARP funds}, I’ve proposed a fee on the biggest banks. Now, I know Wall Street isn’t keen on this idea. But if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.”

The idea of collecting funds from financial institutions that cost the Federal government billions of dollars through massive bailouts is very popular among taxpayers. However, the fee that Obama mentions is actually a tax. He cleverly used the word “fee” to ensure support, as most Americans hate the word “tax”.

Federal Support for College Students

A key point of Obama’s State of the Union was his administrations support for education. He promised to give families a $10,000 tax credit for college, and suggest a number of changes to federal college funding such as limiting the required payments to only 10% of a graduate’s income, forgiving all debt after 20 years for graduates working for private businesses, or 10 years for those who choose a career in public service.

US Clashes With UK Over New Tax Proposal

The United States and United Kingdom usually agree on economic policies, according to Tax Girl leaders from each countries have publicly taken different views on a proposal to tax financial transactions to fund banking rescues.

UK Prime Minister (for now) Gordon Brown is in favor of such a tax, referred to as a so-called “Tobin Tax”, as a way to take the burden off taxpayers in the midst of financial crisis. The idea would be to implement a tax or levy, also characterized as an insurance fee, to be implemented across the board on financial institutions in all economic centers including the US, Europe, Asia, and the Middle East. Brown described it as a “just distribution of risks and rewards.”

But US Treasury Secretary Timothy Geithner has said he would not support such a tax, adding that it should not be the position of those today to pay for future risks. He did not, however, rule out the idea of any responsibility by banks to pay for the economic crisis – he just apparently feels that it’s too soon to consider a tax in the face of other alternatives.

Interestingly, Russia appeared to be in agreement with the US with Russian finance minister, Alexei Kudrin, also voicing skepticism over the tax. Canadian Finance Minister Jim Flaherty also expressed concern over the tax.

However, Max Lawson, the senior policy adviser for Oxfam was enthusiastic about the UK proposal, saying:

Gordon Brown today signaled that payback time for banks could be just around the corner. A tax on banks would be a major step towards clearing up the mess caused by their greed.

While the two day G20 Summit has ended, the matter is far from over. The International Monetary Fund is already looking into this very issue with an eye towards what it’s calling a financial sector tax. One way or the other, we’ll see further discussion on this…

Source: Tax Girl

Tax Proposals Draw Critics in Talks on Financing Health Insurance

From the New York Times:

Even as Congress weighed options to finance health insurance for tens of millions of Americans, lobbyists mobilized Wednesday to head off proposed taxes on employer-provided health benefits, alcoholic beverages and soft drinks.

Labor unions began attacking a proposal by Senators Ron Wyden of Oregon and Max Baucus of Montana, both Democrats, to consider changes in the tax treatment of employer-sponsored insurance, the main source of health coverage for people under 65.

Radio advertisements, run this week in Portland and Eugene, Ore., at a cost of $60,000, say: “Senator Ron Wyden would tax the health care benefits we get at work, as if they were income. Taxing health benefits? That doesn’t make sense.”

The advertisements were bought by the National Education Association, with help from the United Food and Commercial Workers and the American Federation of State, County and Municipal Employees.

Health insurance and health benefits provided by employers to their employees are not counted as income and are not subject to income or payroll taxes. Mr. Baucus and many economists say the tax break is inequitable because its benefits go disproportionately to people with higher incomes.

“It’s too regressive,” said Mr. Baucus, the committee chairman. “It just skews the system.”

Mr. Baucus and Mr. Wyden have suggested that employer-provided health benefits above a certain value could be included in taxable income.

The proposed tax is among two dozen options considered Wednesday by members of the Senate Finance Committee as they looked for ways to pay for coverage of the uninsured. Almost every option faces opposition from some quarters.

New Tax Proposals Target Life Insurers

According to the Wall Street Journal, President Obama is hoping to generate over $12 billion in federal revenue from new taxes on life insurers. “The provisions in the Treasury Department tax plan released last week would restrict several products that have drawn attention from regulators in recent years because of the way they use life-insurance policies as vehicles for minimizing taxes on investments.”

The proposals would restrict several tax breaks received by purchasers of insurance or insurance companies themselves, and also require more information reporting in some cases. Industry representatives say the changes would hit sales in at least one significant area of the business, corporate-owned life insurance.

Several industry trade groups, including the American Council of Life Insurers and the Association for Advanced Life Underwriting, wrote last week to leading lawmakers, expressing opposition to the proposals. "Especially during a financial and economic downturn, increasing taxes on products and on an industry that encourages American consumers and businesses to plan for the future and effectively manage risk is unwise public policy," they said.

Insurance industry representatives also argue that now is a bad time to seek more taxes from the industry, given companies' recent losses on investments. The Treasury has given several big life insurers, such as Hartford Financial Services Group Inc. and Lincoln National Corp., preliminary approval to receive billions in federal aid.

A Treasury official said the tax proposals are unrelated to the federal capital infusions, adding that the insurers applied for that money months ago. The proposed tax changes generally would take effect in 2010 or 2011.

The official said the proposals are aimed at restoring fairness to the tax code. "Our proposals are designed to make sure when it comes to paying taxes, everyone pays their fair share," she said. She noted that some of the proposals are aimed at purchasers of insurance, not the companies themselves.

Announces Plan that Includes $300 Billion in Tax Cuts

From NYTimes.com:

President-elect Barack Obama plans to include about $300 billion in tax cuts for workers and businesses in his economic recovery program as he seeks to win over Congressional skeptics worried that he was too focused on government spending, advisers said Sunday.

The legislation Mr. Obama’s team is developing with Congressional Democrats will devote about 40 percent of the cost to tax cuts, including his centerpiece campaign promise to provide credits up to $500 for most workers, costing roughly $150 billion. The package will also include more than $100 billion in tax incentives for businesses to create jobs and invest in equipment or factories.

The overall package, of $675 billion to $775 billion, is taking shape as Mr. Obama arrived in Washington and planned to begin trying to build support in Congress and among the broader public for his approach to stimulating the economy. Mr. Obama, who flew to the capital Sunday to join his family in a hotel suite while awaiting his inauguration, planned to meet with Congressional leaders on Monday and deliver a speech on Thursday laying the ground for his emerging economic program.

Although some tax cuts were always expected to be included in Mr. Obama’s economic package, his team disclosed the scope and some details of the plans Sunday at a time when Republicans have begun voicing criticism of what they describe as an open-checkbook approach to spending. By focusing more attention on the tax cuts in the plan, Obama aides hope to frame it as a balanced, pragmatic approach.

Mr. Obama will use his public events this week to promise what one adviser called “radical reforms” to impose more control over the regular federal budget down the road. Among other areas, the president-elect will focus on changing Pentagon contracting and aid to corporate America, advisers said. He will also designate a chief performance officer and a chief technology officer Wednesday to help make government more efficient, they said.

Candidates' tax-cut rhetoric swamps voters

From the Seattle Times:

In an outbreak of class warfare, John McCain and Barack Obama swapped sharply worded charges over tax cuts Saturday, each accusing the other of shortchanging middle-income Americans at a time of economic hardship for millions.

McCain, in a paid weekly radio address and at a North Carolina rally, fired the first volley, likening Obama to the socialist leaders of Europe and saying he wanted to "convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington."

Obama responded at a St. Louis rally that attracted 100,000 people, saying his rival "wants to cut taxes for the same people who have already been making out like bandits, in some cases literally."

"John McCain is so out of touch with the struggles you are facing that he must be the first politician in history to call a tax cut for working people 'welfare,' " Obama said.

Based on the candidates' tax proposals, Obama would provide more assistance to low-income and middle-income taxpayers than McCain.

Take a family earning the national median income of $50,233, as calculated by the Census Bureau for 2007. The family would pay $4,837 in federal income taxes for 2009 under McCain's plan, vs. $4,309 under Obama's proposal, according to a mathematical program that University of Southern Maine economics professor Jeffrey Gramlich helped develop.

Biden defends Obama tax-cut plan in Wash

From the Associated Press:

Democratic vice presidential candidate Joe Biden said Sunday that a Barack Obama administration would help the middle class by cutting its taxes, answering Republican claims that Obama's plan represented redistribution of wealth.

Republican presidential candidate John McCain on Saturday likened Obama to the socialist leaders of Europe, saying the Democrat wanted to "convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington."

In response, Biden on Sunday repeatedly linked McCain to President Bush's tax policies, saying that the wealthy and big corporations have received millions of dollars in tax cuts that could have gone to the middle class and small businesses.

"It's not just because it's fair, it's what makes the economy go. The rich do fine when the middle class is going," Biden told an audience at a rally with Washington Gov. Chris Gregoire and other state Democrats vying for office. Thousands of supporters filled Cheney Stadium in this heavily blue-collar region about 40 miles south of Seattle.

"John McCain has been a party to the most significant redistribution of wealth in American history and it has been all the wrong way," he said. "There's not one fundamental economic issue that John McCain disagrees with George Bush on."

Obama-Biden Campaign Unveils Tax Calculator

From Washington Wire:

Playing offense on a favorite Republican attack issue, Barack Obama is offering voters a sneak peek at their share of his proposed tax cuts. Just punch in your income, marital status and a couple of key details, and the “Obama-Biden Tax Calculator” spits out the estimated tax cut that the Democratic ticket is promising you.

Single and making $60,000? The calculator has a $500 check with your name on it. Filing jointly with two kids and $100,000 of family income? $1,000 is on the way, according to the calculator.

The new Web gadget is meant to highlight Obama’s proposed middle class tax cut, which would reduce taxes for 95% of working families, according to the campaign. But punch in an income above $250,000 and the tool says, “You will probably not get a tax cuts under the Obama-Biden plan” –and zero mention of the tax increase planned for the wealthiest taxpayers.

The McCain campaign calls the gadget deceptive for leaving out mention of tax hikes and excluding small business taxes from its calculations. “Barack Obama supports raising taxes during an economic crisis – so the fact that his ‘tax calculator’ is a sham shouldn’t surprise anyone,” said McCain spokesman Tucker Bounds. The conservative group Americans for Tax Reform has also criticized the calculator for leaving out small business tax rates and over-promising on credits for college tuition and retirement savings.

But Wall Street Journal/NBC polling suggests that Republicans have been unable to tag Obama with the toxic tax-and-spend label that has damaged Democrats in the past, despite McCain’s attacks on that front.

The latest survey, conducted in early October, showed voters equally view Obama and McCain, both at 40%, as the best candidate on taxes.

Obama Admits Tax Hikes Could Harm Economic Growth

As many of you may have already heard, earlier in the week Obama was interviewed by George Stephanopoulos and acknowledged that tax hikes hurt the economy.

"I think we've got to take a look and see where the economy is. I mean, the economy is weak right now. The news with Freddie Mac and Fannie Mae I think, along with the unemployment numbers, indicates that we're fragile."

2008 Republican Tax Platform

The Republicans recently released their 2008 Republican Party Platform, which outlines the party’s views on major issues in the next election. You can download a 67 page PDF of their full platform by clicking here. Below are the tax related items of the platform courtesy of Tax Prof.

“Republican Tax Policy: Protecting Hardworking Americans:

The most important distinction between Republicans and the leadership of today’s Democratic Party concerning taxes is not just that we believe you should keep more of what you earn. That’s true, but there is a more fundamental distinction. It concerns the purpose of taxation. We believe government should tax only to raise money for its essential functions.

Today’s Democratic Party views the tax code as a tool for social engineering. They use it to control our behavior, steer our choices, and change the way we live our lives. The Republican Party will put a stop to both social engineering and corporate handouts by simplifying tax policy, eliminating special deals, and putting those saved dollars back into the taxpayers’ pockets.

The Republican Agenda: Using Tax Relief to Grow the Economy

Sound tax policy alone may not ensure economic success, but terrible tax policy does guarantee economic failure. Along with making the 2001 and 2003 tax cuts permanent so American families will not face a large tax hike, Republicans will advance tax policies to support American families, promote savings and innovation, and put us on a path to fundamental tax reform.

Lower Taxes on Families and Individuals

• American families with children are the hardest hit during any economic downturn. Republicans will lower their tax burden by doubling the exemption for dependents.
• New technology should not occasion more taxation. We will permanently ban Internet access taxes and stop all new cell phone taxes.
• For the sake of family farms and small businesses, we will continue our fight against the federal death tax.
• The Alternative Minimum Tax, a stealth levy on the middle-class that unduly targets large families, must be repealed.
• Republicans support tax credits for health care and medical expenses.

Keeping Good Jobs in America

America’s producers can compete successfully in the international arena — as long as they have a level playing field. Today’s tax code is tilted against them, with one of the highest corporate tax rates of all developed countries. That not only hurts American investors, managers, and the U.S. balance of trade; it also sends American jobs overseas. We support a major reduction in the corporate tax rate so that American companies stay competitive with their foreign counterparts and American jobs can remain in this country.

Promoting Savings through the Tax Code

We support a tax code that encourages personal savings. High tax rates discourage thrift by penalizing the return on savings and should be replaced with incentives to save. We support a plan to encourage employers to offer automatic enrollment in tax deferred savings programs. The current limits on tax-free savings accounts should be removed.

Fundamental Tax Reform

Over the long run, the mammoth IRS tax code must be replaced with a system that is simple, transparent, and fair while maximizing economic growth and job creation. As a transition, we support giving all taxpayers the option of filing under current rules or under a two-rate flat tax with generous deductions for families. This gradual approach is the taxpayers’ best hope of overcoming the lobbyist legions that have thwarted past simplification efforts.

As a matter of principle, we oppose retroactive taxation, and we condemn attempts by judges, at any level of government, to seize the power of the purse by ordering higher taxes.

Because of the vital role of religious organizations, charities and fraternal benevolent societies in fostering charity and patriotism, they should not be subject to taxation.

In any fundamental restructuring of federal taxation, to guard against the possibility of hypertaxation of the American people, any value added tax or national sales tax must be tied to simultaneous repeal of the Sixteenth Amendment, which established the federal income tax.

The Democrats Plan to Raise Your Taxes

The last thing Americans need right now is tax hikes. On the federal level, Republicans lowered taxes in 2001 and 2003 in order to encourage economic growth, put more money in the pockets of every taxpayer, and make the system fairer. It worked. If Congress had then controlled its spending, we could have done even more.

Ever since those tax cuts were enacted, the Democratic Party has been clear about its goals: It wants to raise taxes by eliminating those Republican tax reductions. The impact on American families would be disastrous:

• Marginal tax rates would rise. This is in addition to their proposal to target millions of taxpayers with even higher rates.
• The “marriage penalty” would return for two-earner couples.
• The child tax credit would fall to half its current value.
• Small businesses would lose their tax relief.
• The federal death tax would be enormously increased.
• Investment income — the seed money for new jobs — would be eaten away by higher rates for dividend and capital gain income.
  

All that and more would amount to an annual tax hike upwards of $250 billion — almost $700 per taxpayer every year, for a total of $1.1 trillion in additional taxes over the next decade. That is what today’s Democratic Party calls ‘tax fairness.’ We call it an unconscionable assault on the paychecks and pocketbooks of every hard-working American household. Their promises to aim their tax hikes at families with high incomes is a smokescreen; history shows that when Democrats want more money, they raise taxes on everyone.”

New McCain Commercial Attacks Obama’s Tax Proposal

A new commercial from the McCain camp titled “Taxman” recently hit television screens across the country to attach Obama’s new tax plan. Below is an embedded video of the commercial.

Thanks to the Associated Press, below is the script of the commercial as well as analysis from Douglass K. Daniel.

SCRIPT:
"Celebrity? Yes. Ready to lead? No. Obama's new taxes could break your family budget. The press warns the 'taxman cometh.' Obama's taxes mean 'higher prices at the pump.' Obama's taxes a 'recipe for economic disaster.' Higher taxes. Higher gas prices. Economic disaster. That's the real Obama."

ANALYSIS:
“This terse ad is misleading because it targets a broad audience yet makes a key assertion — ‘Obama's new taxes could break your family budget’ — that at most applies only to a narrow group.

Previous ads from the McCain campaign have straddled and at times crossed the line of accuracy in criticizing Obama's policies. This ad bases most of its charges on newspaper editorials. Thus, by citing their opinions, the spot shifts the burden of accuracy from the McCain campaign to others in an effort to appear more credible.

The new ad contains a major caveat when it says Obama's new taxes ‘could’ break the family budget. That family, under the Obama plan, would have to be earning $250,000 or more a year to see its taxes rise. Nearly all those watching the ad would fall outside that group.

The phrase ‘taxman cometh’ appeared in a July 1 editorial in The Wall Street Journal that decried Obama's tax policies.

As presented in the McCain ad, the charge of higher gasoline prices is ambiguous. Obama hasn't suggested raising the federal tax on gasoline. The McCain campaign attributes the prospect of higher prices at the pump to analyses — the one cited in the ad came from a Washington Post editorial published Aug. 6 — that conclude that the costs of Obama's proposed windfalls profit tax on the record earnings of oil companies would eventually be passed on to consumers.

That Obama's plan is a ‘recipe for disaster’ is the opinion of the Las Vegas Review-Journal, which criticized Obama in an editorial published Sept. 20, 2007. It said he sought to raise the tax rate on the top income bracket from 35 percent to 39.6 percent, nearly double the tax rate on capital gains and dividends, and eliminate all tax breaks for the gas and oil industries and private equity firm managers.

When the editorial appeared last fall it was unclear how much of an increase in the capital gains tax Obama favored. On Thursday, Obama's economic advisers said the tax rate would increase to 20 percent, not to nearly 30 percent, and again only for those earning $250,000 or more. The advisers also said Obama would indeed seek rates for the top two income tax brackets at 36 and 39.6 percent to match the levels of the 1990s. All other brackets would remain at today's rates, they said.

To the charge of ‘economic disaster,’ Obama's advisers would probably point to the relative prosperity of the 1990s, the era whose tax rates they seek to return to. McCain rejects allowing the Bush administration tax cuts to expire on schedule, saying that would result in higher taxes. Obama counters that the Bush tax cuts favored the wealthy to begin with.”

Obama Announces Revised Tax Plan

Presidential hopeful, Sen. Barack Obama released a new version of his tax plan. Possibly due to negative media attention, Obama has decreased his ambitions for a large capital gains tax increase. Instead of doubling the capital gains and dividends tax rate, his new plan seeks to only raise it to 20% for families making over $250,000. Below is the summary of his new plan, but you can download the full version at BarackObama.com.

“Barack Obama’s tax plan delivers broad-based tax relief to middle class families and cuts taxes for small businesses and companies that create jobs in America, while restoring fairness to our tax code and returning to fiscal responsibility. Coupled with Obama’s commitment to invest in key areas like health, clean energy, innovation and education, his tax plan will help restore bottom-up economic growth that helps create good jobs in America and empowers all families achieve the American dream.

Obama’s Comprehensive Tax Policy Plan for America will:

• Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.
• Provide generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.
• Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of healthcare and to reward investments in innovation.
• Dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant.

Under the Obama Plan:

Middle class families will see their taxes cut and no family making less than $250,000 will see their taxes increase. The typical middle class family will receive well over $1,000 in tax relief under the Obama plan, and will pay tax rates that are 20% lower than they faced under President Reagan. According to the Tax Policy Center, the Obama plan provides three times as much tax relief for middle class families as Sen. John McCain’s plan.

Families making more than $250,000 will pay either the same or lower tax rates than they paid in the 1990s. Obama will ask the wealthiest 2% of families to give back a portion of the tax cuts they have received over the past eight years to ensure we are restoring fairness and returning to fiscal responsibility. But no family will pay higher tax rates than they would have paid in the 1990s. In fact, dividend rates would be 39 percent lower than what President Bush proposed in his 2001 tax cut.

Obama’s plan will cut taxes overall, reducing revenues to below the levels that prevailed under Ronald Reagan (less than 18.2 percent of GDP). The Obama tax plan is a net tax cut – his tax relief for middle class families is larger than the revenue raised by his tax changes for families over $250,000. Coupled with his commitment to cut unnecessary spending, Obama will pay for this tax relief while bringing down the budget deficit.”

Obama’s War on Women?

From the New York Sun Editorial:

“The Obama campaign has at long last lifted the veil of mystery that has surrounded the Democratic presidential candidate's tax increase plans. Mr. Obama's two economic advisers, Jason Furman and Austan Goolsbee, have an op-ed piece in today's Wall Street Journal, and it isn't pretty. To begin with, they propose bringing back the 39.6% top income tax bracket, an increase from the 35% current top rate. On top of that, he'd impose a new payroll tax on those top earners of 2% to 4%, bringing their marginal tax rate to as high as 43.6%. Add to that the top New York City income tax rate of 3.648% and the top New York State income tax rate of 6.85%, and the nominal marginal income tax rate mounts to a staggering 54%. Because Mr. Obama proposes to put the capital gains and dividend tax rate at 20% even for the ‘rich’ — a mere 33% increase over the current 15% rate — expect to see plenty of high earners scurrying to find creative ways of structuring their income as capital gains or dividends rather than as earned income.

Meanwhile, the most astonishing sentence in the op-ed is this one: ‘His plan would not raise any taxes on couples making less than $250,000 a year, nor on any single person with income under $200,000.’ It amounts to a declaration of war on two-income families, a marriage penalty of punitive proportions. If those two single persons, with income just under $200,000 get married, Mr. Obama is going to hammer them with a huge tax increase. If the second earner, who in many cases is the woman, is going to have to give 54% of what she earns to the government, she might as well stay home with the children. Mr. Obama may be able to get away with symbolic slights to women, such as not picking Senator Clinton as vice president. But punishing them with confiscatory taxes for participating in the workforce at a high income level moves the slight into the realm of substance.”

Regardless of who wins in November, taxes will change

Earlier today, I came across this interesting article on KansasCity.com, while I was reading the latest news about the presidential campaigns. The author correctly argues one main point - that no matter who becomes our next President there will need to be changes to our current tax system.

“The fact that President Bush and Congress enacted temporary tax cuts in 2001 and 2003 that expire at the end of 2010 means it's inevitable that taxes will change, perhaps dramatically.

The next president and Congress will agree to extend some or all of those tax cuts while also cutting or raising other taxes - or else political gridlock will stymie agreement, the tax cuts will expire, and tax bills will go up for almost everyone.

‘It is a unique moment,’ said Robert Reischauer, a former director of the Congressional Budget Office. ‘Something has to happen.’

But what? Who will pay less and who will pay more? Which plan will get through a Congress all but certain to remain in Democratic control? The likeliest ideas to make it through are those few changes that Democrat Barack Obama and Republican John McCain both want.

They both want to extend the Bush tax cuts for those making less than $250,000 - mainly the $1,000 per child tax credit, lower income tax rates and elimination of the marriage penalty.

‘There's a good chance that whoever the next president is, the Congress will agree to extend the middle-class tax cuts,’ said Leonard Burman, director of the Tax Policy Center, a joint operation of the Urban Institute and Brookings Institution that analyzes taxes. Both are center-left think tanks.

"The candidates want it and majorities in both houses of Congress favor it," Burman said. Beyond that, however, Obama and McCain differ greatly.”

Sen. John McCain: a Deeper Look at his Tax Views

As the fight for the Democratic nomination continues, the voters decided that Senator John McCain would get the Republican nomination months ago. Although there were a few other conservative candidates, they all dropped out early on in the election cycle. However, other Republicans frequently criticize McCain for being too liberal and not representing the whole party. Who can forget when attention-starved, political author Anne Coulter announced she would vote for Hilary Clinton over John McCain?

This is the third and final entry in my deeper look at the presidential candidate’s tax views. Unlike Clinton and Obama, McCain’s economic views represent the views of conservatives with tax cuts for higher income individuals and no tax increases.

Make Tax Increases More Difficult
One of the most radical tax views of McCain is his desire to make additional tax increases more difficult. He hopes to follow California Republicans in requiring a 3/5 super majority for any tax increases. This will, in effect, give the minority in congress more power and leverage to negotiate trades for important votes. However, in given the current economic uncertainty, such a barrier could have devastating effects. This is especially the case under McCain’s plan to increase our military presence around the world. It will cost the government billions of dollars. But without proper funding, a war cannot continue. Yet, with McCain’s plan it would be difficult to pass tax increases to cover these military expenses.

Alternative Flat Tax System
Although McCain does not support an outright switch to a flat tax, he is making strides towards one. Like any Republican, McCain is not a big fan of our current progressive tax system. His plan is to expand the 15% tax bracket to lower taxes on millions of middle income Americans. Under his plan, the ceiling for the 15% bracket would increase from $43,050 to $70,000 for married couples filing jointly, and from $25,750 to $35,000 for single taxpayers.

The more revolutionary aspect of his plan is the offering of an optional flat tax system. This system would be held out as an alternative to the current progressive system and the myriad of credits, exemptions, deductions, carryover rules, and different tax rates for different forms of income. McCain’s plan would be to tax all taxpayers on all income sources at one single rate. The flat rate would be set at 19% for first two years, 17% thereafter.

McCain’s tax cut plan is estimated to cost the federal government about $240 billion in the next five years, and over $500 in 10 years. However, these are early estimates and with current inflation levels, his plan could cost even more.

When speaking about his plan to fix the tax code, McCain claimed that, "the tax code now requires $140 billion of American families' income to prepare their tax returns." Unfortunately, he greatly overestimated this number. The exact cost attributed to individual taxpayers was only $65 billion, and some estimate the total at a much lower $20 billion. Although McCain's camp said he was drawing his figures from a 2005 report by the President's Advisory Panel on Federal Tax Reform, the study was not just on families, it included both individual and business taxes

Gas Tax Holiday
The Gas Tax Holiday is one of the few tax proposals that are supported by both McCain and Clinton. As I have mentioned before, this plan is to stop the collection of federal taxes on gasoline and diesel from Memorial Day to Labor Day. Currently the federal government collects an excise tax in the amount of 18.4 cents for gasoline and a 24.4 cents for diesel. Some estimates have cited average savings of $70 per person, but the exact numbers are widely disputed.

Although the phrase “gas tax holiday” sounds good, this holiday is getting a lot of criticism for being nothing more then a campaign gimmick. Within a few days of the announcement 200 of the top economists came forward saying the plan was worthless. Many claim that lower prices would lead to more demand, and only the big oil companies would get anything out of the holiday.

Repeal Alternative Minimum Tax
In addition to lowering taxes on middle income families, McCain also wants to repeal the Alternative Minimum Tax (AMT), which would basically be a tax cut for the upper middle income taxpayers.

“I believe that we've got to simplify the tax code,” claims McCain. “But one of the first areas we've got to go after is the alternate minimum tax, which is going to eat in to 20 million American families if we don't eliminate it, and very quickly.”

Although the AMT is very unpopular it generates billions of dollars in federal revenue. In addition, remember that the president does not have the power to just remove a tax – only congress does. If McCain wants this tax fully repealed, then he is going to have to strike a deal with congress, and it seems highly unlikely that he would get enough support to make this drastic change.

Extend President Bush Tax Cuts
Although McCain had originally voted against the Bush tax cuts, he now claims to support an extension of the plan. “I voted to extend them because it would have the effect of having a tax increase,” claimed McCain when asked about his flip-flop. “The tax cuts have increased revenues enormously. They've been very beneficial. The problem is that spending has lurched completely out of control. My proposal was to restrain spending. I do not support tax increases. And the effect of not making them permanent would have the effect of a tax increase.”

Unfortunately, changing your view on important issues is suicide for a presidential hopeful. Think back to the 2004 election, and how strongly the Bush campaign pushed the flip-flop label on John Kerry. Voters do not tend to vote for someone they feel will flip on an issue, yet if McCain wants to win the election he is going to need to.

Cut Corporate Tax Rates
Another tax cut McCain supports is cutting the corporate tax rate from 35% to 25%. The United States has one of the highest corporate tax rates in the developed world. If we want businesses to stay in this country then we need to keep our tax rates competitive. McCain’s plan does just that.

Revisions to Charitable Contributions
Another controversial component of McCain’s tax plan is his hope to revise the current laws on charitable contributions. Under his plan, taxpayers that give charitable contributions in the form of stock, real estate, bonds, or artwork would not be able to take a tax deduction for the current, inflated value of the gift. Instead, they would only be allowed to take a deduction for the original cost of the asset.

McCain claims this would only affect the richest Americans who take advantage of this loophole to reduce their tax liabilities. However, the plan has been met with loud criticism. The current administration has publicly stated “anything that would take money away from a charity is a step in the wrong direction.”

“Wealthy Americans shouldn’t get a tax write-off for contributing a fancy painting or an overvalued stock,” responded a spokesperson for McCain. “Bush is protecting his wealthy donor base at the expense of the middle class.”

Health Insurance Tax Credit
When it comes to health care, McCain wants to give more responsibility and control to individual patients. His plan would remove current tax breaks given to employers to provide health insurance, and replace it with a $5,000 credit to families who purchase their own health care. He suggests that it would encourage choice and competition in the market, thus lowering current prices. “I’ll work tirelessly to address the problem,” Mr. McCain claimed in a speech at the University of South Florida. “But I won’t create another entitlement program that Washington will let get out of control. I won’t do it. Nor will I saddle states with another unfunded mandate.”