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A Preliminary Analysis of the 2008 Presidential Candidates' Tax Plans (Summary)

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Document date: June 24, 2008
Released online: June 24, 2008

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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An Updated Analysis is available

Abstract

Tax and fiscal policy will loom large in the next president's domestic policy agenda. Nearly all of the tax cuts enacted since 2001 expire at the end of 2010 and the individual alternative minimum tax (AMT) threatens to ensnare tens of millions of Americans. While a permanent fix palatable to both political parties has proven elusive, both candidates have proposed major tax changes. This summary outlines our analysis of the 2008 presidential candidates' tax plans. The full length report is also available.


Introduction

Tax and fiscal policy will loom large in the next president's domestic policy agenda. The scheduled expiration of most of the Bush tax cuts in 2011, the expanding impact of the alternative minimum tax (AMT), and large projected increases in spending on Social Security, Medicare, and Medicaid will all demand attention early in the new administration. Both presidential candidates have proposed major changes to the nation's tax laws that would reduce federal revenues and shift in markedly different ways the burden of taxes among households. This paper analyzes the proposals as we understand them based on speeches, campaign websites, and conversations with campaign staff. In some cases, our description is at variance with candidates' public statements (notably in the case of the AMT), but our description is consistent with what we have been able to learn from the campaigns. This analysis excludes the effect of the candidates' health proposals, but that will be included in a future report.

The candidates' tax plans head in sharply different directions. Senator McCain would permanently extend the 2001 and 2003 tax cuts, increase deductions for taxpayers supporting dependents, reduce the corporate income tax rate, and allow immediate deductions for the cost of certain short-lived capital equipment (summary table 1). Senator Obama would also make most provisions of the recent tax cuts permanent, but only for taxpayers with incomes under $250,000. He would also raise the maximum rate on capital gains and provide new or expanded targeted tax breaks for workers, retirees, homeowners, savers, students, and new farmers. Both candidates would retain the AMT but continue the “patch” that has protected most individuals and families from the tax in recent years. Both candidates would also increase the estate tax exemption and reduce the estate tax rate compared with scheduled values after 2010, but Senator McCain would cut the tax rate and increase the exemption much more than Senator Obama. Finally, both candidates promise to recoup at least some of their tax cuts by broadening the tax base and reducing corporate loopholes, although again, their specific proposals differ substantially from each other and both claim revenues from unspecified loophole closers.

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Topics/Tags: | Economy/Taxes | Retirement and Older Americans


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