The District Chronicles

Issue date: 9/21/08 Section: Cover

(NNPA) - The non-profit Tax Policy Center has released an analysis of the tax plans proposed by U.S. presidential candidates Barack Obama and John McCain.

The analysis bolsters Obama's assertions that, at least when it comes to taxes, John McCain is offering essentially four more years of President Bush' tax policies.

"The two candidates' plans would have sharply different distributional effects," the report says. "Senator McCain's tax cuts would primarily benefit those with very high incomes, raising their after-tax incomes by more than twice the average for all households. Few households at the bottom of the income distribution would get tax cuts."

McCain's proposal, like the current Bush poliocy, assumes that allowing businesses and upper income individuals to keep more of their income encourages them to invest and expand their businesses, thereby creating more jobs. These policies are modern versions of former president Ronald Regan's "Trickle Down Theory."

The problem with this theory is if worker income does not keep pace with prices, consumers cut back spending, which slows the economy. The most recent example is the spike in fuel prices, which caused consumers to spend less on all but essential goods and services.

"In marked contrast, Sen. Obama offers much larger tax breaks to low - and middle-income taxpayers and would increase taxes on high-income taxpayers," the report says,  "The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution. Taxpayers with the highest income would see their taxes rise significantly."

The report also looked at the possible effects of each plan on the economy.

McCain's plan would limit the rate that top money earners pay to 35 percent while Obama's plans would tax them at 39.6 percent. McCain's plan would tax corporations at a maximum rate of 25 percent compared to Obama's rate of 35 percent.

"McCain's reduced individual and corporate rates could improve economic efficiency and increase domestic investment, but the larger future deficits would reduce and might completely negate any positive effect. In contrast, Sen. Obama's proposed new tax credits could encourage desirable behavior, particularly if the childless [Earned Income Tax Credit] 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 -homeownership-which could probably be better directed elsewhere."

Continued...

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