"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.
