An open letter on taxes to the undecided voter

As a general rule, I try to stay clear of political topics on my blog. I started it as a blog about technology and for the most part I try and keep it focused on technology issues.

But with just a day left for the 2008 elections, I think it is ok for me to suspend my rule for an important post as I have seen many political ads unfairly attack the Obama plan and I think it is time to put in my 2cents on this topic.

When I saw Joe the plumber stumping for McCain, it intrigued me to see what the real differences were in the 2 candidates tax plans. I wanted to look at how the tax plans would mainly affect low and middle income families and small business. What I found out was interesting. The easiest way to understand the tax plan differences is by looking at how our tax bill would change if either candidates' complete tax plan got implemented.

The following table shows how much less or more we would pay in taxes if either candidates plans got implemented. (Red stands for a reduction in taxes and black stands for an increase)

	Change in Tax Bill (red means a reduction in tax bill and black stands for an increase in the tax bill)
	OBAMA	MCCAIN
Under $19K	($567)	($19)
$19K-$38K	($892)	($113)
$38K-$66K	($1,042)	($319)
$66K-$112K	($1,290)	($1,009)
$112K-$161K	($2,204)	($2,614)
$161K-$227K	($2,789)	($4,380)
$227K-$603K	$12	($7,871)
$603K and up	$115,974	($45,361)
Over $2.9M	$701,885	($269,364)

 

As you can see - Obama's tax plan is better for the middle class (which to me means: anybody who earns less that $112k). And if you were to extend the range to $161k, the difference between the amount of tax that people would pay based on Obama's and McCain's plan is still not very large ($410).

As for small business, remember that tax is not paid on revenue but on profits (revenue - expenses for those of you who don’t know). An increase of 3% on taxes ($7,871) on a profit of $250,000 (or 1.3% on $603,000) is definitely not much. This makes Joe the plumber's arguments very disingenuous - as even though there might be many small business that easily make $250,000 and more in revenue, most don’t even make $100,000 in profits. (Remember that Obama's tax plan will not increase taxes - income, capital gains or any other tax - on those having an income of $250,000 or less.)

Here is an interesting statement from the "Business Week" (http://www.businessweek.com/investor/content/jun2008/pi20080622_415010.htm)

• Senator McCain's tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after tax incomes by more than twice the average for all households. Many fewer households at the bottom of the income distribution would get tax cuts, and those whose taxes fall would, on average, see their after tax income rise much less.

• In marked contrast, Senator 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 distribution, while taxpayers with the highest income would see their taxes rise.

Remember that we have a deficit of almost $800 billon now - someone will have to pay to close that deficit and here is a news flash - it will be us. Considering that, I think it is important that we elect the candidate that will be fair in his tax plans (for that we need to elect the person who has a progressive and not a regressive tax plan).

Here is what CNN had to say: (http://money.cnn.com/2008/06/11/news/economy/candidates_taxproposals_tpc/?postversion=2008061113)

McCain: The average taxpayer in every income group would see a lower tax bill, but high-income taxpayers would benefit more than everyone else.

Obama: High-income taxpayers would pay more in taxes, while everyone else's tax bill would be reduced. Those who benefit the most - in terms of reducing their taxes as a percentage of after-tax income - are in the lowest income groups.

Under both plans, all American taxpayers could pay a price for their tax cuts: a bigger deficit. The Tax Policy Center estimates that over 10 years, McCain's tax proposals could increase the national debt by as much as $4.5 trillion with interest, while Obama's could add as much as $3.3 trillion.

Here are some of the links that I researched for this topic:

http://money.cnn.com/2008/06/11/news/economy/candidates_taxproposals_tpc/?postversion=2008061113

http://www.youtube.com/watch?v=9fbxpMw4mco

http://taxprof.typepad.com/taxprof_blog/2008/06/cnn-the-mccain.html

http://taxprof.typepad.com/taxprof_blog/2008/06/comparison-of-t.html

http://www.taxpolicycenter.org/publications/url.cfm?ID=411781

http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf