One of the biggest issues of the presidential campaign is taxes. Even though the economy seems to be one of the main focuses of the election, the reality is that voters really want to know how their bottom lines will be affected.
While each candidate has released some of their ideas for tax plans, the truth is that for any of them to work, they have to get through Congress. However, learning a little bit more about the competing tax plans can provide an idea of the philosophy driving each candidate.
The Basics of President Obama’s Tax Plan
First of all, there are more details about what Obama plans, since the administration has had to share information about the plan in budget proposals. Here are some of the basics:
- Most of the current tax rates would remain the same, but the top two marginal rates would rise on those with AGIs of $250,000 (couples) or $200,000 (singles). The 33% rate would move to 36%, and the 35% rate would move to 39.6%.
- High earners would see a top rate of 20% on long-term capital gains, and dividends would be considered regular income.
- The requirement of the health care reform law to raise Medicare taxes on earnings above $250,000 kicks in during 2013.
- Itemized deductions for high earners would be limited.
- The $2,500 college tuition tax credit, set to expire this year, would become permanent.
The real question is how long the tax situation would be sustainable, before more middle class taxpayers would have to see a bigger tax increase as well as the higher income earners, since the spending isn’t much changed, and the deficit could continue to grow.
According to the Tax Policy Center, changes would affect those earning as little as $75,000 by increasing taxes by about $45 a year. For those earning between $100,000 and $200,000, the increase would be $219. It really doesn’t start increasing a great deal until earnings make at least $500,000 — at which point the likely tax increase would be $25,000.
The Basics of Governor Romney’s Tax Plan
While Obama is clear that he would raise taxes on the rich, Romney is equally clear that isn’t an option. The basics of Romney’s plan, as it has been explained so far, include:
- Promises to ensure that current lower rates do not expire, and then to work to reduce each tax rate by 20%.
- Taxes on investments and savings would be eliminated for those couples earning less than $200,000 a year (or $100,000 for singles).
- Limits on tax breaks (but there are no details on which tax breaks would be eliminated)
- Wants to repeal the Health Care Reform law, eliminating the Medicare tax on high earners.
Even though the Romney campaign disagrees with the analysis from the Tax Policy Center, the Center still reports that those earning $75,000 would see a tax savings of $2,000 a year. The largest savings, those, are for those who earn more than $500,000 a year: The Tax Policy Center predicts that they would end up with what amounts to a 10% increase in after-tax income.
There haven’t been a lot of details, but some analysts believe that, even with the budget cuts being proposed, they aren’t enough to offset the cost of the tax reductions in a way to effectively reduce the deficit.
What do you think? Which plan do you think is most likely to succeed? And which do you agree with?
(Photo: Tax Credits)