The two e's

Election, economy. Election, economy. The two "e's" are dominating the headlines these days. And rightfully so--the election is two and half weeks away and the economy is bleeding. It's really pretty serious. 

And while both candidates are now touting new rescue plans on top of their longer-term economic strategies, it seems like market and economic conditions are changing so quickly that it's hard to know whether these ideas would be actionable and when. In the end, it all feels like a sale to us. It was difficult enough to keep track of their plans before the economy tanked. Sigh.

So, in an effort to help us all, we've been trying to cut through the jargon of these plans and to bring you just the facts, ma'am. Since there are so many nuances, we're going to just focus on their tax plans for individuals only, and keep it plain and simple--not muddle them with corporate tax plans, which they also talk a lot about.

- President Bush cut taxes in 2001 and 2003, creating new (lower) tax brackets. For instance, if you were taxed 28%, that dropped to 25%. He also cut capital gains taxes (income you make on investments) in half, to 15%. These cuts are good only until January 1, 2011, and McCain wants to make them permanent. 

- You've probably heard this mentioned over and over: Obama wants to cut taxes for 95% of Americans. This is everyone who makes less than $250,000 a year (a lot of people!). What does this mean? Folks in this category would see at least a $500 cut for individuals or $1,000 cut for families. If you make more than $250,000, your taxes will likely go up but he says you will not pay more than what you paid before the Bush tax cuts. It looks like people in the top 35% tax bracked would pay closer to 39%. 

- Both candidates talk about estate taxes. What are these? Well, they're taxes that apply when you die. Basically, everything you're worth is taxable when you die. If everything you're worth (as an individual) is equal to $2 million or less today, you're exempt from paying taxes on that money. But everything over that amount is taxed at 45%. So, if you're worth $10 million, $8 million is taxed at 45%.

In 2009, the amount your exempt from jumps to $3.5 million. In 2011, it reverts back to $1 million per person. McCain wants to raise that figure to $5 million, and tax the rest at 15%. Obama wants keep the cap at $3.5 million and tax the rest at 45%.

  

The big picture

Taxes of course are just a piece of McCain and Obama's overall economic plans. Job creation, social security, health care, retirement savings and plans for handling the large number of home foreclosures across the country make up their comprehensive plans. (See a comparison of their plans here.) Regardless of their plans, it's clear whomever wins is going to be saddled with a monumental task of healing a sick economy.

Comments

[Nicole Y]

You are failing to mention the additional taxes Barack Obama will be putting on capital gains and small businesses. Taxing ANYONE in this economy will do no good - history has proved that point. Furthermore, by taxing corporations more and small businesses, that means less money for them to HIGHER people.

[Stacey]

Good catch. I think he wants to increase capital gains taxes for folks in that $250K + income bracket from 15% to 20%.

[Mridula]

Under Obama's plan, the bottom 40% of all earners (most of whom pay NO federal income taxes) will get "refundable tax credits". This means that despite the fact that they pay no federal income taxes, they will get checks every year from the IRS, kinda like welfare. Additionally, their marginal tax rates will increase, discouraging them from earning more (not good for productivity i.e. our economy). He also wants to soak the most productive earners (business and individuals with more than $250,000 in earnings) in our economy with higher effective income and capital gains taxes. Obama's plan will lower the income of the top 1% by $19,000/year (-1.5% loss in income). Obama's plan will result in the top 1 mil. filers paying more than the bottom 128 mil. McCain's proposals increase the income of ALL filers: The top 1% by 9.5% and the middle class by 3% (vs. 5% for Obama). Its by far a more fair tax proposal, but some might consider it to be less progressive. From my point of view, though, adding to the pockets of ALL filers will be more stimulating for our economy. You can find these numbers from the Tax Policy Center (Brookings and Urban Institute).