A wealth of difference in two tax-cut plans

Given what’s happened to the economy in the past few weeks — and the fallout that’s likely to continue between now and January — it’s tempting to take the economic and tax plans proposed by John McCain and Barack Obama and toss them both in the trash can.

After all, the plans were conceived and drafted for an economic reality that no longer exists. The political world in which they were imagined has changed dramatically as well, as have public attitudes toward business and government. Regardless of who wins the election, the next president of the United States will face a situation that very few could have predicted a year ago and that even fewer fully comprehend even now.

Understandably, with barely four weeks left in the campaign and the economic situation in such flux, neither candidate has tried to go back and update his plan. However, those plans do tell us something about how the two candidates perceive the economy, where their values lie and how they would generally approach the challenges ahead.

McCain’s plan represents a reversal of sorts for the Arizona Republican. Back in 2001, he was one of only two Senate Republicans to vote against the $1.35 trillion Bush tax cuts, due to expire in 2010.

“I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief,” McCain said at the time.

But seven years later, given the chance to draft a tax plan of his own, McCain extends and enhances the Bush approach. In fact, according to a computer analysis by the nonpartisan Tax Policy Center, “Sen. McCain’s tax cuts would primarily benefit those with very high incomes. … Many fewer households at the bottom of the income distribution would get tax cuts.”

To conduct its analysis, the Tax Policy Center conferred in detail with top economic advisers in both campaigns, trying to ensure that they got it right. In some cases, as it noted, the platforms described by economic advisers differed from those described by the candidates themselves on the stump.

“Sen. McCain’s proposals on the stump are often far more sweeping than the more measured options outlined by his campaign,” notes the TPC analysis, available at www.taxpolicycenter.org. “Sen. Obama also often proposes new taxes on high-income households to extend Social Security solvency, but his staff insists that no specific policy exists.”

In general, the analysis concludes that “Sen. Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise significantly.”

On specific items, the differences are equally stark. McCain would make the Bush tax cuts permanent for everyone. Obama would make the cuts permanent only for taxpayers with incomes of less than $250,000, allowing taxes to rise significantly for the fewer than 5 percent of Americans with incomes above $250,000.

McCain would leave the current capital gains tax at a maximum of 15 percent. Obama would leave the rate at 15 percent for most Americans, but raise it to somewhere between 20 percent and 28 percent for those with incomes above $250,000. He would also “enact new and expanded targeted tax breaks for workers, retirees, homeowners, students and new farmers,” according to the TPC analysis.

McCain proposes an estate tax of 15 percent on estates greater than $5 million; Obama would set the rate at 45 percent, with no tax on estates of $3.5 million or less. And under McCain, the top tax rate on individual earned income would be 35 percent; under Obama, it would be 39.6 percent.

The TPC also analyzed the impact of the McCain and Obama tax proposals on the deficit. Compared with current tax policy — in other words, if the “temporary” Bush tax cuts are considered permanent — “Sen. Obama’s proposals would raise $800 billion and Sen. McCain’s proposals lose $600 billion” over the first 10 years.

(Under the rules of its analysis, the Tax Policy Center did not adjust deficit estimates to account for spending cuts proposed by either campaign.)

Even in normal times, such campaign proposals would be subject to great change once a candidate takes office and has to compromise with Congress. And again, these are anything but normal times. Under these new conditions, no one can say with any certainty what proposals McCain or Obama would advocate once in office.

But what they’ve proposed in the past tells us that McCain has now embraced the Reaganomics approach that he rejected back in his “maverick” days, and that under Obama, tax increases would be far more targeted and limited than his opponents have tried to claim in this campaign. His general approach — trying to ease the burden on low- and middle-income households, while trying to bring the deficit under control — seems the wiser course no matter what the future may hold.

• Jay Bookman, for the editorial board (jbookman@ajc.com).