A few days ago, we released eight tax policy questions we have for Senators McCain and Obama:
- The Treasury Department and the Congressional Budget Office say that housing receives more tax subsidies than any other industry, thanks to the ever-growing government effort to boost home ownership. Most tax experts say we've got to pull back some of those subsidies so that people only buy a house when they can afford it.
- Senator McCain, your plan doesn't rescind any of housing's tax benefits. Isn't it time to take on the housing industry's claim to tax breaks that subsidize home ownership?
- Senator Obama, your plan actually piles on more tax benefits for housing. Why are the experts wrong?
- A recent OECD study reports that the U.S. corporate tax rate is the second-highest among industrialized countries. Do you believe this affects America's ability to attract capital and to compete economically in the global marketplace? If so, what would you do about it? If not, why not?
- Polls show that most Americans think our income tax system is too complicated and nearly 60% of taxpayers pay someone else to fill out their tax forms. Next year, there will even be a worksheet for the standard deduction. Despite the calls for a major overhaul and simplification of the system, both of you offer tax proposals that further complicate the tax code with more credits and deductions. Why can't you remove some?
- Congress has always eliminated taxes for the poorest. But with new credits, even middle-class filers are joining the ranks of "non-payers." Currently, one-third of tax filers owe nothing in income taxes, and if either of your plans is enacted next year, about 43% of filers would get every dollar back that was withheld from their paychecks. Do you think it is desirable to have nearly half of Americans disconnected from the income tax system?
- Since the early 1990s, lawmakers have increasingly used the tax code, instead of government spending programs, to funnel money to groups of people they want to reward, enacting credits to subsidize families with children, college students, and purchasers of hybrid cars. Do you think it is still a good idea to use the IRS as a vehicle for social policy?
- Tax Foundation economists have described Barack Obama's tax plan as an advancement of redistribution, focusing on dividing the "economic pie", while John McCain's tax plan places more emphasis on "growing the pie."
- To John McCain: Is it the role of taxes to enforce fairness, and if so, how will your plan accomplish that?
- To Barack Obama: How will you make sure that the pie that you want to divide differently can grow overall?
- There have been claims made by both campaigns on each other's tax proposals that have appeared in several advertisements.
- To John McCain: You have attacked Sen. Obama for wanting to tax electricity. Then why do you support doing essentially the same thing with your carbon cap and trade proposal?
- To Barack Obama: Why have you said the McCain tax plan gives no benefits to "100 million households" while the liberal Brookings-Urban Tax Policy Center scores the McCain health tax credit as a big tax cut for the vast majority of households?
- There has been considerable debate during the campaign over what the federal government should do about the higher price of gasoline, but the proposals of both candidates have little economic backing.
- To Barack Obama: Why impose a windfall profits tax on U.S. oil companies when it failed so miserably during the 1980s? Don't private and public pension funds invest in them?
- To John McCain: Why did you support a gas tax holiday when experts have called it a gimmick that would not lower gas prices significantly?
To learn more about Presidential tax proposals, go to http://www.taxfoundation.org/candidates08/.
Sen. McCain is running a new ad on taxes featuring Gov. Palin. Here's the transcript of the ad:
GOVERNOR PALIN: How are you going to be better off if our opponent adds a massive tax burden to the American economy?
ANNOUNCER: Good question.
GOVERNOR PALIN: The Democratic nominee for President supports plans to raise income taxes, and raise payroll taxes, and raise investment income taxes. How are you going to be better off if our opponent adds a massive tax burden to the American economy?
ANNOUNCER: The answer: we won’t.
Unfortunately, it's not that simple. You see Sen. Obama's tax plan raises taxes on some and cuts taxes for others. Many on the right call such a plan redistribution (and accuse some of those tax cuts as being spending in disguise). Obama labels his tax plan fairness and neighborly of the rich.
This ad implies that Obama's tax hikes on high income taxpayers would affect low-and-middle income households. This is of course true to some extent, but that adverse effect on those at the bottom is not likely to outweigh the added "transfer" income that those households would receive from Obama's direct tax cut targeted at them (in a rather inefficient manner I might add) that is financed by the higher taxes on those at the top.
The fact of the matter is that in order to accurately criticize Obama's tax plan on distributional terms, the McCain campaign essentially needs to say that his tax plan is redistribution and is unfair. But that may not be an easy sell with many in the middle. So instead, McCain tells them that Obama's tax hikes on the rich are going to hurt them, when in reality, most of those in the middle are still going to be better off from Obama's tax plan (assuming they don't care about the moral dimensions of redistribution).
