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Taxing the rich

Wealth is key in candidates' tax platforms

True to party doctrine, McCain's plan would ease the burden on the rich, while Obama's would increase it.

August 21, 2008|Stephen Braun | Times Staff Writer

washington -- The sharpening rhetoric between John McCain and Barack Obama over their competing plans to overhaul the nation's tax system has underscored one of the most profound differences between them -- how they would target America's wealthiest taxpayers.

Under McCain, the rich would see their tax burden ease. Under Obama, their rates would rise dramatically.

For much of the campaign, the two candidates have talked sparingly and obliquely about how they would deal with affluent taxpayers. But a recent volley of acid-edged campaign ads stirred up the tax issue, and a question posed last weekend by Orange County pastor Rick Warren zeroed in on how both men defined "rich."

Obama said the dividing line was an income of $250,000 a year, while McCain responded somewhat flippantly that it was $5 million. McCain aides said later that the senator was joking, but his remark quickly became a campaign flashpoint.

"I guess if you're making $3 million a year, you're middle class," Obama sniped, prompting a McCain aide to fire back: "It's not the job of the government to define who is rich."

Where to draw the line among the nation's wealthiest taxpayers is the central difference between rival tax blueprints that offer starkly differing formulas for reviving a faltering economy.

On Tuesday, new ads from both camps played on the public's rising anxiety about taxes, incomes and the volatile economy. "Three Times," an Obama television ad airing from Virginia to Colorado, savages McCain for lavishing $200-billion tax "giveaways" on "big corporations." McCain responded with "Millions," a radio ad that predicts Obama will "raise taxes on your income, your electric bills, even your life savings."

The two camps immediately issued rebuttals, each claiming its position on taxes was being distorted by the opposition. The Obama campaign contended that the overwhelming majority of Americans would not see a tax increase under his plan, only the wealthiest 5% or so. The McCain side retorted that the "$4 billion" in tax breaks for oil companies mentioned in Obama's ad was misleading because McCain is proposing an across-the-board tax cut for all corporations and is not favoring the oil industry.

A close look at their proposals shows that the differences fall neatly along the traditional policy gulf that has long divided Republicans and Democrats: liberating the wealthy with tax cuts to stimulate the nation's prosperity versus raising their rates to redistribute the tax burden and pay for crucial government programs.

"The real fault lines are over how to treat people in the highest tax brackets. It gets to the heart of their economic philosophies," said Leonard E. Burman, a senior fellow with the Tax Policy Center, a nonpartisan Washington-based tax reform group that has questioned the details of both tax plans.

Both candidates have promised to balance their tax relief programs with budget cuts designed to trim soaring deficits. But the Tax Policy Center has warned that both plans -- coupled with the candidates' high-cost healthcare proposals -- would balloon the $9.6-trillion national debt. The center's analysis reported that McCain's tax proposals would add $5 trillion to the debt over the next 10 years, while Obama's would add $3.6 trillion.

"Both tax plans take for granted a big peace dividend from ending the war in Iraq," Burman said. "That's a big assumption."

McCain's plan would cater to wealthy taxpayers and corporations by extending and expanding President Bush's tax cuts, slashing corporate taxes and weakening the estate tax, but it would also aid taxpayers across the board by making the full Bush cuts permanent.

A deficit hawk and formerly a critic of the massive tax cuts launched in 2001 by the Bush administration, McCain now embraces the tax policies of supply-side economists who contend that lifting the tax yoke on the rich would encourage investment and stimulate the economy. "Wealth creates wealth," McCain said during a primary debate in Michigan last year.

Under his proposals, McCain would make all the 2001 and 2003 Bush tax cuts permanent. That would keep the two highest tax brackets at their current rates of 33% and 35% -- rather than reverting to 36% and 39.6%, where they were during the Clinton administration.

The tax cuts have "been law for eight years now, and taxpayers are used to those rates," said J.D. Foster, a senior fellow at the conservative Heritage Foundation in Washington. "Allowing them to expire would be tantamount to a massive tax increase."

McCain also has proposed a sharp reduction in corporate taxes. He would pare the two highest corporate tax brackets, 34% and 35%, down to 25%. The top bracket would be immediately eliminated, and the 34% bracket would be phased down to 25% between 2009 and 2014.

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