Comparing the McCain and Obama Tax Plans

The Chicago Sun-Times writes a piece comparing each candidates' tax proposals:

The rich would pay more under Barack Obama's tax plan, and the poor and middle-class would pay less, a nonpartisan analysis finds. Under John McCain's plan, the rich would pay much less than they do now, the poor and middle-class would pay a bit less, and the federal deficit would grow, the study found.

 Describing a joint analysis conducted by the Brookings Institute and the Urban Institute as "nonpartisan" may be a bit of a stretch.  The Brookings Institute is decidedly left-of-center.  The creation of the Urban Institute was recommended by a panel of civic leaders appointed by President Lyndon Johnson to study "problems facing America's cities and residents."  With that little disclaimer out of the way, here are the particulars on Obama's plan according to the analysis:

Obama says he would hike several taxes on people making more than $250,000, including the amount they pay on capital gains. Currently, the top income tax rate is 35 percent. Under Obama, that would go back up to 39 percent. Obama's staff told the Urban-Brookings Tax Policy Center he would raise the rates for people in the top two brackets -- about 2.5 million filers out of 100 million-plus. People in those high tax brackets would see the tax rate on their capital gains hiked from the current 15 percent to 20-28 percent.

Obama started his campaign saying his plans would not increase taxes for people earning less than $250,000. But he found himself in an apparent contradiction by saying he would tax all income to fund Social Security, not just income up to $102,000, as is now the case. So now, Obama's plan calls for no Social Security tax on income between $102,000 and $250,000, but all income above $250,000 would be taxed for Social Security.

The 95 percent-plus of the American population that earns less than $250,000 would see the following tax breaks: A $500-per-worker tax credit for people who earn less than $150,000 and do not itemize, and a $4,000 credit per child in college. Seniors who earn less than $50,000 would pay no income tax.

Here are the particulars for McCain: 

McCain would make permanent most of the tax cuts President Bush has already enacted, including those that benefit the middle class, such as elimination of the marriage penalty and the increase in child credits. He would also keep cuts that benefit the wealthy, such as the elimination of the highest tax brackets. Obama would keep the breaks for the middle class but not the ones for the wealthy.

McCain would also double the dependent exemption from $3,500 to $7,000, benefiting big families of all incomes.

Here's the part that has the most potential to impact economic growth:

Obama would leave the top corporate tax rate at 35 percent. McCain would cut it to 25 percent.

And the capital gains tax?

The two candidates differ widely in their approach to the estate tax, which the Republicans call the "death tax." McCain would set it at 15 percent for estates above $5 million. Obama would set it at 45 percent for estates above $3.5 million.

McCain's plan is the superior one when it comes to the potential to grow the economy.  Obama's opposition to lowering the top corporate rate isn't constructive.  Coupled with his intention to require businesses to pay 6.2% in Social Security taxes for each dollar of salary in excess of $102,000, the present ceiling for Social Security taxes, would retard economic expansion.

The article acknowledges that the deficit projected for McCain's plan doesn't take into account other factors that would be part of the federal budget.  Spending cuts would obviously mitigate against deficits.  It's also not clear if the analysis allows for the possibility of increased tax revenues pouring into the federal coffers as a result of lowering the top corporate tax rate.  Lower rates can mean more corporate profits, increased investments, more economic growth, and, consequently, more federal tax dollars collected.

The Tax Policy Center's report can be viewed here.