Comparo of the Candidates' Tax Plans (caution, lots of reading)

[smockers83]

We've been talking a lot about taxes and so I finally decided to read it, the Tax Policy Center's analysis comparing McCain's and Obama's tax policy. I won't post all of the confusing stuff (some of it confuses me, mainly the charts as they aren't very well explained), just the conclusions of the effects of the policies.

McCain's Plan and Long Term ConsequencesThe consequences of all these proposals for economic efficiency and the distribution of economic burdens depend critically on how the measures are financed. To the extent that individual and corporate marginal tax rate reductions are deficit-financed (that is, the government simply borrows more), the positive effects of lower tax rates will be offset by the costs of increased government debt. More government debt eventually translates into higher interest rates, which discourage business investment and consumers’ demand for homes and such durable goods as automobiles, or, alternatively, into increased debt owed to foreigners, which mortgages the nation’s long-term economic future. And if swelling deficits are closed by future tax increases rather than spending cuts, we impose much greater economic costs of taxation on our children and grandchildren than they would face if we do not enact tax cuts today.

If growing deficits eventually require draconian spending cuts—a stated goal of those who adhere to the “starve the beast” theory of government—then vulnerable populations may lack essential services; critical infrastructure investments for roads, bridges, and dams may be deferred; and the national defense may suffer.

Obama's Plan and Efficiency Consequences Senator Obama’s plan would substantially increase the deficit compared with current law and would add nearly $3.3 trillion to the national debt over ten years. Top marginal income tax rates would increase to their pre-2001 levels, but top capital gains tax rates would be higher and dividend tax rates lower. The effect of the higher capital gains tax is a mixed bag, however. (See Burman, 1999, for a discussion.) Higher tax rates on capital gains encourage investors to hold assets longer than they would otherwise, may deter risk-taking, and contribute to the double-taxation of corporate equity. But reducing the difference between the tax rates on capital gains and other income lessens the incentive to use economically inefficient tax shelters to convert ordinary income into capital gains. The lower tax rate on dividends compared with current law in 2011 reduces double taxation of corporate equity and thus gives firms less artificial incentive to retain earnings instead of paying dividends. Together, the capital gains and dividends provisions probably have little or no effect on the performance of the economy.

Obama’s proposals to tax carried interest as ordinary income, limit international corporate tax shelters, improve information reporting, apply the “economic substance doctrine” to business transactions, and reduce the tax gap could all improve economic efficiency by reducing the incentive to engage in purely tax-motivated transactions. Corporations and high-income individuals would be motivated to select investments and arrange compensation to maximize productivity rather than simply to reduce tax liability. But some of the proposals may generate much less revenue than the Obama campaign claims, because the sophisticated tax avoidance techniques that Obama wants to reduce are difficult to control.

Overall, the economic effect of the Obama proposals will depend on how the resulting deficits are closed. If the deficits result in higher tax rates in the future, the economy will be harmed. If they are closed by spending cuts, the economic costs will be lower, but the long-term gain in progressivity may also be diminished depending on which programs are cut.

Comparison of Budgetary Effects Under either Senator Obama’s or Senator McCain’s plan, however, the debt would likely continue to rise as it has over the past eight years, even under the CBO’s relatively optimistic assumptions about spending. Senator Obama’s plan would add $3.3 trillion to the national debt (including additional interest costs) while Senator McCain’s plan would add $4.3 trillion. This does not include the cost of expanding health insurance coverage and assumes that Senator McCain’s proposals phase in and phase out on schedule. It also assumes that all of the candidates’ optimistic revenue offsets materialize. If any of these assumptions turned out to be unwarranted, the national debt would grow even more.

Another way to look at the candidates’ proposals is how much revenues would be as a share of GDP. Under Senator Obama’s plan, revenues would total 18.2 percent of GDP in 2013—at the end of a hypothetical first term. This is about the average revenue collected by the federal government since World War II. Under Senator McCain’s plan, the revenue yield would be about 17.8 percent. Given that demands on the federal government are likely to exceed historical levels in 2013 (CBO projects spending at 19.5 percent of GDP, even assuming a wind-down of war-related expenses), these estimates imply that substantial cuts in spending would be required to balance the budget if all of the proposed tax cuts were enacted.

[audtatious]

You get most of that from cnnmoney?http://money.cnn.com/2008/06/1...x.htm

Just a question, not an accusation

[smockers83]

http://www.taxpolicycenter.org...s.pdf

CNN copied/copies TPC.