Obama vs. Romney – everyone’s taxes up in the air

 

McClatchy Newspapers

Reflecting their political philosophies, President Barack Obama and Republican challenger Mitt Romney take sharply divergent paths when it comes to taxing individuals and corporations.

Their basic approach is easy to distinguish: Obama wants to raise taxes on the wealthiest Americans; Romney would slash rates across the board.

But many key details – for Romney’s plan in particular – are lacking and make side-by-side comparison a challenge. And experts warn that neither plan appears sustainable, as they wouldn’t scratch the nation’s mounting deficit unless they’re offset by other tax hikes or matched by sweeping cuts in spending.

“The biggest flaws are that at some point we need to be talking about not looking for more and more tax cuts, we need to talk about how to get the revenue to pay for our spending promises,” said Joshua Gordon, policy director at the nonpartisan Concord Coalition, which advocates fiscal responsibility. “The fiscal challenges over the long term are too much to deal with just on the spending side.”

Here’s what each proposes to do:

INCOME TAXES

Income taxes are about to increase for all Americans when the George W. Bush-era tax cuts expire on Dec. 31. The two candidates differ on what to do.

Obama proposes to:

– Extend the Bush-era tax cuts for incomes below $200,000 for individuals and families above $250,000.

– Repeal the Alternative Minimum Tax that hits middle-class taxpayers as their incomes rise.

– Let Bush-era tax cuts expire for individual incomes above $200,000 and family incomes above $250,000.

– Enact a 30 percent minimum tax on all income in excess of $1 million.

The focus of Obama’s plan is to extend tax cuts for the middle class and to raise taxes on higher incomes, what he calls an issue of fairness.

He could raise taxes, though, on incomes below $200,000. Most notably, he’s likely to agree to let a temporary 2 percentage point cut in the payroll tax expire as scheduled on Dec. 31. That would raise every American’s taxes, regardless of income.

Treasury Secretary Tim Geithner signaled in recent congressional testimony that the administration is unlikely to push for an extension of the payroll tax cut for individuals. However, Obama’s stalled jobs bill does propose a payroll tax holiday for most small businesses if they add jobs or raise wages.

Romney wants to:

– Extend the Bush-era tax cuts for all incomes.

– Cut all income tax rates by another 20 percent.

– Limit some deductions so higher income taxpayers still pay the same despite the cut in tax rates.

– Repeal the Alternative Minimum Tax.

– End taxes on capital gains, interest and dividends for incomes below $200,000.

Romney also appears ready to let the payroll tax rise by 2 percentage points.

Generally, Romney looks to tax cuts and tax simplification to put more money in people’s pockets and help boost economic growth. They could, however, add to the annual budget deficits and the accumulating debt more than Obama, which could be a drag on growth.

By themselves, the cuts in tax rates would give the biggest break to wealthier Americans, who pay more in taxes.

Those making more than $600,000 would save about $150,000 and those at the very top – making nearly $3 million – would get a $725,000 break, according to the nonpartisan Tax Policy Center.

For households earning between $70,000 and $120,000, the average savings would be about $2,000. Those making between $40,000 and $70,000 would save about $800. The bottom 20 percent – those making less than $20,000 – would see their average federal tax rate increase $149.

Comparing the two candidates on income taxes carries a giant asterisk.

Romney pledges to make his plan “revenue neutral” and says the wealthy would continue the same share of the government’s total tax collection. But he’s refused to identify which tax breaks he’d target to balance the books, and experts with the Tax Policy Center said that makes a side-by-side comparison impossible.

The center said there aren’t enough tax breaks for the wealthy for Romney to target and that he’d be unable to keep his promise to keep his plan revenue neutral without eliminating tax breaks for the 95 percent of households with incomes under $200,000.

“The details are so sparse, it is impossible to figure out whether they can achieve their goals, especially Romney,” said David Kautter, managing director of the Kogod Tax Center at American University.

Romney’s campaign rejects the policy center’s report, and Romney during last week’s presidential debate insisted that he wouldn’t raise taxes on the middle class or grow the deficit.

Before the debate, Romney floated the idea of a cap on income tax deductions to pay for lost revenues. The principle is something Obama has also entertained, but there has been little interest on Capitol Hill, analysts say. In an interview with a Denver TV station, Romney suggested up to a $17,000 limit for families, though his campaign says he’s not necessarily endorsing the approach.

CORPORATE TAXES

Romney would repeal the corporate alternative minimum tax, cut the corporate tax rate from 35 percent to 25 percent, make a research tax credit permanent and switch to a “territorial tax system,” so that profits earned abroad by U.S.-based multinationals would not be subject to U.S. taxes.

Obama would “go in the exact the opposition direction,” said Kautter, adding that Obama would try to expand the existing worldwide system of taxing U.S. corporations, provide incentives for them to move jobs back to the U.S. and penalize companies that try to move jobs offshore.

Obama would cut the corporate rate, though not as deeply. He’d cut it to 28 percent for some. For domestic manufacturers, he’d cut the tax rate to 25 percent.

Obama also would eliminate a number of oil and gas preferences in the tax law, along with reducing the depreciation for corporate aircraft.

ESTATE TAX

Under the temporary Bush-era tax cuts, estates worth less than $5 million – $10 million for couples – are exempt from the tax, which can take 35 percent for Uncle Sam.

On Jan. 1, however, the tax shoots back up to its old levels, hitting estates valued at $1 million or more and assessing a top rate of 55 percent.

Romney proposes to repeal the estate tax, which is paid by a small number of wealthy families.

Obama would split the difference. He’d exempt estates worth less than $3.5 million – $7 million for couples – and set the top tax rate at 45 percent – the same levels that were in effect in 2009.

The Tax Policy Center has concluded that for households earning between $70,000 and $120,000, Obama’s plan would pay about $71 more in taxes. Those making between $40,000 and $70,000 would save about $11.

The biggest earners would be hardest hit: Those making more than $600,000 would see about an increase of about $100,000, and those at the very top – making nearly $3 million – would see a $549,000 increase.

The bottom 20 percent – those making less than $20,000 – would see their average federal tax rate fall by $2.

Email: lclark@mcclatchydc.com; Twitter: @lesleyclark

Read more Politics Wires stories from the Miami Herald

  • ACLU sues Hawaii over election storm response

    The American Civil Liberties Union of Hawaii has asked the state's top court to allow voters affected by Tropical Storm Iselle to cast ballots in the primary election.

  •  
FILE - In this March 10, 1969, file photo taken by Toby Massey, President Richard M. Nixon waves from the doorway of Air Force One in Homestead, Fla. Massey, a photographer and photo editor who directed coverage of many prominent events during his 38-year career with The Associated Press, died Thursday, Aug. 21, 2014. He was 80.

    Former AP photo editor Toby Massey dies

    Toby Massey, a photographer and photo editor who directed coverage of presidents and political conventions as well as natural disasters, the space program and sporting events during a 38-year career with The Associated Press, died Thursday. He was 80.

  •  
Texas Gov. Rick Perry, under indictment on two felony counts, is in the nation’s capital to deliver a speech at The Heritage Foundation about the border crisis plaguing his state on Thursday, Aug. 21, 2014, in Washington, D.C. (Olivier Douliery/Abaca Press/MCT)

    Inside conservative fold, Perry talks of indictment, immigration

    Texas Gov. Rick Perry, fresh from his recent indictment on charges of abusing the powers of his office, told a conservative audience Thursday that the “porous” southern border provides an entry point for Islamic terrorists to strike in the United States.

Miami Herald

Join the
Discussion

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category