Both Obama, McCain Vow To Lower Taxes, But How?

Both presumptive presidential nominees propose to extend President Bush's tax cuts. Wealthy Americans stand to lose — or gain — the most, depending on who's elected. Steve Inskeep talks with NPR Economics Correspondent John Ydstie about the tax plans proposed by Sens. John McCain and Barack Obama.

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STEVE INSKEEP, host:

The major party presidential candidates agree: both promise to lower your taxes and both say the other guy won't.

Senator JOHN MCCAIN (Republican, Arizona): If you believe you should pay more taxes, I'm the wrong candidate for you. Senator Obama is your man.

Senator BARACK OBAMA (Democrat, Illinois): What Senator McCain is going to need to explain is why his tax cut for the middle class would leave out 101 million households.

INSKEEP: That's Senator Obama and Senator McCain warning you away from each other this week. NPR economics correspondent John Ydstie has been studying what the candidates would do, according to their campaign speeches and promises. John, welcome back to the program.

JOHN YDSTIE: Thank you, Steve. Nice to be here.

INSKEEP: What's the basic situation regardless of who's in the White House in January?

YDSTIE: Well, let's first talk about where we're measuring from here. Remember that President Bush's big tax cuts are set to expire at the end of 2010. What McCain would do would be to extend those tax cuts for everyone. What Obama would do would be to extend them for everyone making under $250,000 a year.

INSKEEP: So, each one is able to say for most Americans, or in some cases all Americans, I'm going to take care of you; I'm going to protect you from higher taxes.

YDSTIE: I'm going to give you a tax cut.

INSKEEP: So each can claim that. Let's go through though different income groups and see where different people might fare under these two candidates. Maybe we'll start with wealthy people. Under McCain, under Obama, how do you if you're making, I don't know, two, three hundred, four hundred thousand dollars a year or more?

YDSTIE: Well, let's go higher than that - the top one-tenth of one percent of Americans, about 150,000 households. With McCain in the White House, you would get a tax cut of about $700,000. With Obama in the White House, you'd get a tax increase of about $300,000. That means depending on who's in the White House, you could have a million dollar swing in your tax bill.

INSKEEP: Wow. And that's just taking all different kinds of taxes into account, whether it's income taxes, anything else.

YDSTIE: And including corporate taxes. McCain is going to cut the corporate tax rate. Most of that redounds to the benefit of well-off people, and that's included in that number that we just talked about.

INSKEEP: So, really, really rich people would clearly pay more under Obama. What about people who consider themselves middle class?

YDSTIE: Well, let's talk about people between $40,000 and $70,000 a year - right in the middle of the income distribution. Things aren't quite so stark there. Under Obama you'd get a tax cut of about $2,100; under McCain your tax cut would be about $1,400.

INSKEEP: Obama would give a larger tax cut for people in that middle class category?

YDSTIE: In that middle class, absolutely.

INSKEEP: And where is that happening? Is that income taxes or something else?

YDSTIE: It's largely in a proposal where he would get $500 for an individual, $1,000 for a family - a tax credit that he says would offset what they pay in payroll taxes.

INSKEEP: But John McCain also has tax cuts targeted for people in that middle income we're talking about here?

YDSTIE: He does. In addition to extending the Bush tax cuts for them, he also has a doubling of the dependent care deduction from $3,500 to $7,000. So people with children would get a big boost there.

INSKEEP: Both of these guys are talking about keeping many people's taxes low. Millions and millions of people. Have they figured out how they're going to finance that, given that we've got huge budget deficits?

YDSTIE: Well, both of them claim that they are going to finance them by finding places to cut the budget. But the Tax Policy Center, a nonpartisan group that has analyzed these tax proposals, says that both of them would indeed increase the national debt.

INSKEEP: Now, let's pull ourselves out of the details here. What is the big idea that seems to animate each of these candidates as he considers his tax policies?

YDSTIE: Well, for Senator McCain the big idea is a Republican idea going back to Ronald Reagan, and that is to boost growth, and you can hear it in his rhetoric. Let's listen to some tape of him talking to a small business organization.

Sen. MCCAIN: I propose a reduction in the corporate tax rate from the second highest in the world to one on par with our trading partners to keep businesses and jobs in this country.

YDSTIE: So McCain talks a lot about boosting economic growth, and I think most economists would agree. If you cut corporate tax rates, if you cut personal income tax rates, you're going to boost growth. The rub is this: if you don't pay for those tax cuts and you increase the deficit, you could very easily undermine that growth.

INSKEEP: What about on Barack Obama's side? What's the big idea there?

YDSTIE: The big idea there for Barack Obama is fairness and closing the income gap that we've seen grow over the last couple of decades. And you hear that in his rhetoric on the stump as well.

Sen. OBAMA: I believe it's time to reform our tax code so that it rewards work and not just wealth.

YDSTIE: Now, when you say fairness, I'm sure that's a word that polls well, but if you start calling it redistribution of wealth, it might become something that more people would be skeptical of.

YDSTIE: I think you're absolutely right about that, and I don't think we've heard Senator Obama describe it that way, but I can imagine John McCain might describe that way at some point.

INSKEEP: John Ydstie, NPR economics correspondent. Good to talk with you again.

YDSTIE: Nice to talk to you.

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