Obama and McCain: Who Would Pay Taxes?

Since 1980, economic growth has concentrated income at the very top of the income distribution.  After 2000, that tendency became especially intense, with 75% of all income growth accruing to the top one percent of households.  Tax policy could have mitigated this trend but it did not. The tax cuts of 2001 and 2003 provided the bulk of their boosts to the after-tax income of the same households that enjoyed the most rapid growth of pre-tax income, those with the very highest incomes.

 

Presidential contenders Barack Obama and John McCain are laying out careful tax policy proposals that allow one to answer the following questions:

• What will happen to total tax collections under the candidates’ tax proposals?

• How will taxes and after-tax income change for households at various points in the income distribution under the proposals?

 

The Brookings-Urban Institute Tax Policy Center has prepared a document that carefully answers these questions. Here are the headlines of this research.

 

Tax collections as a share of GDP will decline under either the Obama or the McCain tax plan

While neither plan would dramatically alter the percent of GDP collected as tax revenue, the Obama and the McCain plans would result in revenue as a share of GDP lower in 2012 than in 2009 and also lower than under current law (which calls for the tax cuts of 2001 and 2003 to sunset in 2010 and for the Alernative Minimum Tax to return in full force).  The difference among alternatives is relatively modest, as Figure 1 shows.

Note: “current policy” includes the 2001 and 2003 tax cuts and the patch to the AMT.  These would expire under “current law.”

 

 

The beneficiaries of tax cuts under the Obama and McCain tax plans differ sharply.  The Obama plan benefits low and middle income households; the McCain plan benefits high and middle income households.

Compared to current tax law (that is, to what the tax code would revert to in 2010) both tax plans would cut tax rates, as we have just seen.  But the benefits would decline systematically with income under the Obama plan, while they would rise systematically under the McCain plan. 

In the middle of the income distribution, households would benefit under both tax plans, more under Obama’s tax plan than McCains.  But at the bottom and top of the income distribution, the differences are extreme.  The Bottom 20 percent of households would see their after-tax income rise by more than six percent under the Obama plan but by less than one percent under the McCain plan.  At the other end, the top one percent of households would face a decline in their after tax income of 5 percent under Obama and an increase in after-tax income of nearly 12 percent under McCain.

 

Neither Obama nor McCain proposes substantial changes in the overall rate of taxation, but Obama’s proposals would slightly mitigate the trend toward heavier and heavier concentration of income at the very top of the distribution, while McCain’s proposal would strengthen this trend.

Comments

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[charles]

Obama's tax plan will destroy the Social Security system.

Obama says his income tax plan will lower taxes for 95% of Americans. There is just one problem with this, 40% of Americans already pay no income tax. Obama's response to this is that these people pay Social Security tax. Well, that's not income tax, but a contribution to their retirement plan. So if he wins and implements his tax plan, for the first time in the history of Social Security, 40% of the people who will get retirement benefits will have paid nothing for them. Social Security will then loose all pretext of being a retirement plan, and will become a national welfare program.

This will cause Social Security to lose public support in a massive way. Leave Social Security contributions out of income tax plans. If you take some peoples income taxes to pay others Social Security taxes, Social Security will be destroyed forever.

http://strategicthought-charles77.blogspot.com/2008/10/obamas-tax-plan-will-destroy-social.html