The issue for this week is tax policy. This issue is needlessly complicated, and accurate analysis, like education policy, requires a series of articles. In Part I, I discussed the crowding out effect which explains the danger of unguarded deficits. In Part II, I explained the effect of spending on local projects which have no national significance (pork-barrell spending). Part III will focus on some of the taxes that are debated, and where the candidates stand. Finally, Part IV will explain the different alleged effects of these positions.
This article will discuss different policies regarding social security, income, and capital gains taxes, which I think are the three most continuously debated.
Social Secuirty
I previously stated about this issue:
Barack Obama
[S]upports increasing the maximum amount of earnings covered by Social Security and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.This is a version of the "raise the tax" solution.
John McCain,
believes that we may meet our obligations to the retirees of today and the future without raising taxes. [He] supports supplementing the current Social Security system with personal accounts .
Income tax
Bloomberg provides this analysis on Barack Obama's plan:
Start with the individual taxpayer. Democrats want to let the old Bush tax cuts expire, which would take the top rate on the income tax up 4.6 percentage points.Obama for his part has repeatedly and specifically spoken of lifting the cap -- there's that word again -- on the payroll tax. This move alone amounts to a 6.2 percent increase on higher earners -- 12.4 if you count the employers' side, which economists do.
These two increases alone would undo all the Bush tax cuts. Add in some other unlovely obscurities and you have a top tax rate of close to 50 percent on the entrepreneur. That is far higher than even the 43 percent top rate that obtained in the later Clinton years.
According to the left leaning Tax Policy Institute the only real difference in the income tax plans would be the distribution of burdens under the tax system. John McCain would put more money in everyone's pocket, and Barack Obama would increase taxes on those in the top 1% (though we showed above it would be many more people than that).
Capital Gains
I am baffled by Barack Obama's position here:
Obama has a plan to pay for his tax reform plan. In addition to closing the corporate loopholes and cracking down on international tax havens, he will pay for middle class tax relief by and increasing the highest bracket for capital gains and dividends and closing the carried interest loophole.
When the maximum rate on capital gains goes up the amount of investment and therefore the tax collected actually goes down.
CNN has John McCain's response:
Why in the world would anyone consider raising your taxes in difficult economic times? Sen. Obama wants to raise capital gains tax. My friends, there's a hundred million people who have some kind of investment that is affected by capital gains," he said. "Why would we want to take more of the people's money and send it to Washington to spend on a bridge in Alaska to an island with 50 people on it?"