Obama Vs. McCain on Taxes

The Tax Policy Center recently released an updated version of their “Analysis of the 2008 Presidential Candidates’ Tax Plans“. It’s an excellent read if you want hard figures on how your vote may effect your bank account in terms of how much of your own money you will get to keep if that candidate wins the election.

In general, I think it’s safe to say that there is a perception that democrats tend to want to tax citizens more than republicans do. I’ll let someone else run the numbers as to whether or not that is true historically, but I do know that back in the late 50’s, under republican leadership, the tax rate for the highest income tax bracket was 45%. With McCain these taxpayers will pay 28.3% and with Obama they’d pay 39.2%. Historically, taxes have trended lower whether donkeys or elephants are in office.

So, let’s take a look at the short term and long term effects of McCain and Obama’s plans. Please note that both charts I’m about to show display an increase or decrease in after-tax income, not an increase or decrease in tax rate (positive is good).

McCain and Obama Tax Plans: Immediate Tax Effects (2009)

Here, you can see the immediate impact of Obama and McCain’s tax plans. With Obama, all but the top quintile of taxpayers would end up keeping more of their income, with the lowest quintile seeing a boost of almost 5% in after-tax income. The top quintile under Obama does get taxed higher, but the majority looks to be amongst the top 1 and 0.1% of the population in terms of income.

McCain is different in that his tax breaks get progressively higher by each quintile. None of the quintiles see much more than a 1% increase in income, with the exception of the top quintile, which sees over a 3% increase. Breaks are even higher for the top 1 and 0.1% of the population.

Let’s see how your taxes would look once both candidates policies would be fully implemented.

McCain and Obama Tax Plans Once Fully Implemented (2012):

Here, you can see even more savings from both candidates. With Obama, all quintiles will see an increase in after tax income, which scales lower with each progressive income quintile. Only the top 1 percent would see a slight decrease.

With McCain, each progressive quintile would see an increase in after tax income, with the top 0.1% seeing nearly a whopping 12% increase. Now that we’ve seen the effect on everyone’s pocketbook, let’s take a look at the effect on the federal budget.

Effect of Obama and McCain’s Tax Plans on Federal Tax Revenue

According the the Tax Policy Center, Obama’s plan would cost the government $2.6 trillion in revenue over 10 years, while McCain’s would cost $7 trillion. Staggering numbers by all accounts. It makes you wonder where that revenue will be made up or if it just means more budget cuts.

The Bottom Line

Over 80% of Americans (the poorest 80%) would benefit more from Senator Obama’s tax plans, while 20% (primarily the richest 1%) would benefit more from Senator McCain’s. I am somewhat surprised by these numbers given the stereotype placed on democrats as wanting to hike your taxes. If you had to summarize the tax plans of either candidate in catch phrases, it would go something like this:

Obama: Take from the very rich and give to everyone else.

McCain: Let the rich get extremely rich and the poor get slightly less poor.

All political affiliations aside, of course. Either way it looks like mostly everyone will be paying less in taxes if the candidates keep their word (read my lips), and everyone should thank their lucky stars they weren’t taxpayers back in the 1950’s.

Don’t Miss Out on Free 20SomethingFinance Content Updates!

You may also find the following articles of interest:

How to Make a Stock Trade

When will Obama’s Tax Cuts Take Effect?