Financial crisis, U.S. presidential elections and tax policy
- Eleni Klaver
Posted under General Category
Oct 10, 2008

Financial crisis, U.S. presidential elections and tax policy

The financial crisis in the US housing and in the global credit markets, together with rising food and energy prices, present real challenges for policymakers, especially when, as part of the US presidential election campaign, it comes to forming effective (and popular) tax policy.
As the world watches, Sen. Obama and Sen. McCain, the two U.S. presidential candidates, battle out their ideological differences in the race to deal with the financial chaos and to win over the taxpayers and their votes. 

Tax policy is at the center of both campaigns. The McCain campaign claims they have a simple, fair, "pro-growth" and competitive tax policy, which some describe as mostly benefitting corporations and large taxpayers.  The Obama campaign, on the other hand, presents a comprehensive tax policy, which would restore bottom-up economic growth by delivering broad-based tax relief to the middle class and tax cuts to small businesses.

Does either of these sets of proposals address the financial crisis effectively?

 The McCain Plan The Obama Plan
  •  Keep tax rates low (Keep the top tax rate at 35%, 15% on dividends and capital gains);
  •  Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples
  •  Cut the corporate tax rate from 35% to 25%;
  •  Provide numerous tax cuts for low- and middle-income taxpayers
  •  Allow first year deduction, or “expensing”, of equipment and technology;
  •  Eliminate capital gains taxes for small businesses
  •  Establish permanent tax credit equal to 10% of wages spent on R&D;
  •  Cut corporate taxes for firms that invest and create jobs in the United States
  •  Ban internet taxes;
  •  Provide tax credits to reduce the cost of healthcare and to reward investments in innovation
  •  Ban new cell phone taxes.
  •  Simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax returns, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant.

 


Comments (12)
Anonymous
Comment: McCain's plan is the right approach for strengthening capitalism and international trade. I think he appreciates the need for the US to remain competitive in global trade. However, these are no longer the goals in which the US voters are interested. I hope the US voters realize that growing a strong and robust middle class is necessary to have long term economic stability. Free market capitalism can't be taken to the degree that 95% of assets and equity rise to the top 5% of the population. The concept of a waitress paying a higher progressive rate than a hedge fund manager is untenable. Therefore, I think the Obama plan will rebuild the country's economy in a way that allows for more consistent income distribution and hopefully more long term prosperity.
October 13 09:36 AM
Konstantin
Comment: My knowledge of US tax is approximating zero at the moment, but it seems that the two alternatives are very generous. The idea behind those is (I presume) to kick-start the economic engine again either with the left "demand-side" (Obama's) foot or the right "supply-side" (McCain's) foot. The question is, however, will there be any "fuel" left in the "tank" after the "extinguishing" of the financial part of the cysis? Or if there's not enough left, who will pay for the "refill"?
October 14 05:39 PM
anonymous also
Comment: The young people in the US, as everywhere, must learn from their own mistakes, unfortunately not from the previously made same mistakes. It sounds nice to offer middleclass tax cuts, but really doesn't make a lot of sense if they are not employed. This should be phase two, only after business tax cuts to incentivize investments and business tax credits for increased hiring. The US has visited this problem before, as the wise, experienced elderly can attest. Middle class tax cuts will only succeed in flushing the toilet for a fresh start for the waitresses to switch to subsistence farming.
October 20 03:54 PM
René Offermanns
Comment: Pursuant to the measues taken to solve to the current financial crisis, it has to be seen how much room is left for tax reductions. Presuming that there is room for tax cuts, I regard the plan of Sn. Obama as the best approach. The plan of Sn. McCain mainly seems to further multinationals and exports. One of the biggest problems of the US, however, is the substantial increase of unemployment. This results in a decrease of domestic consumption, which will increase unemployment even more. US voters are mainly interested in having a future, which requires measures to create jobs. Jobs can be created by making it attractive to hire additional staff and by measures which further consumption. If it is not possible to finance both, first the job creatinng measures should be taken. Finally, the Obama plan may result in a more fair income contribution and hopefully contribute to long term prosperity for larger groups of the population.
October 21 12:14 PM
Giammarco Cottani
Comment: According to a new analysis by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, Democrat Barack Obama and Republican John McCain are both proposing tax plans that would result in cuts for most American families. Obama's plan gives the biggest cuts to those who make the least, while McCain would give the largest cuts to the very wealthy. For the approximately 147,000 families that make up the top 0.1 percent of the income scale, the difference between the two plans is stark. While McCain offers a $269,364 tax cut, Obama would raise their taxes, on average, by $701,885 - a difference of nearly $1 million. On the basis of the above and for millions of other reasons, I stay with Obama.
October 21 03:19 PM
Nicolas
Comment: Simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax returns, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant seems to me like a sweet dream. Similar promises have been made around the globe earlier and appear usually from time to time whenever there is an election going to be. In Germany, the keyword for this is "tax return on a beer coaster". It has been suggested several time already. The last time by a tax professor, a former judge of the Federal Tax Court, before the elections in 2005. Well, he failed, the dream did not come true and there are still around 80.000 tax adviser being busy doing tax returns of middle-class Germans. Therefore, I guess this part of Obama's plan will not be realised. I just wonder whether anyone could seriously believe in a "tax return on a beer coaster promise". Cheers!
October 22 06:24 PM
Eleni
Comment: Nicolas, I hear what you're saying, but my question is: why did it fail? Could it be that Germany had the right idea, but just didn't implement it correctly?
October 22 08:24 PM
BEKC
Comment: In some European countries much less developed in technological terms than USA or Germany filling the individual tax return has been simplified to the extent of making the services of a tax adviser or an accountant redundant. IT allow the Administration to make itself the tax returns of one third of the taxpayers. If the taxpayer disagrees with his tax return, he can submit a new one with his own criteria. Besides, the Administration offers the possibility of filling the tax return in a personal appointment with a civil servant. Furthermore, the main banks offer their clients the possibility of filling the tax returns free of charge. Finally, the taxpayer can submit the tax return via internet using the software from the Administration official website. Of course this has changed the business of the tax advisors. In the last few years, many of them have been expelled from the market and others have had to look for new niches, offering a higher level of tax consultancy.
October 22 11:53 PM
Anonymous
Comment: At the time of the financial crisis the US voters should be kept out of depression. I think the Obama plan would manage it better. More jobs and tax cuts for low- and middle-income taxpayers would stimulate a normal (economical) behaviour and keep the wheel turning.
October 23 02:56 PM
Ezequiel
Comment: The real difference between the two will probably be how much emphasis they will be put into assurign the transparency and integrity of the tax system. Most of the problems we are facing today are due to the lack of transparency, which (listen to this) is due ot the use of Offshore Financial Centers, which not only offer zero tax but also absolute secrecy. The consequence being that even in the cash market they do not trust each anymore, possibly considering that as they have huge liabilities off-balance sheet so do others and one day they will be back. Since Obama is one of the signatories of the Stop Tax Haven abuses act in the American Senate, there are good chances that he will keep on fighting. The statements from Germany and France and several other major economies are promising. Let’s see what happens next. A world without secrecy would certainly be a better world for most people.
October 27 07:43 PM
Nicolas
Comment: The dream of a "tax return on a beer coaster" did not come true because Germany was and still is not ready for it yet. The tax system for a large country with 80 million inhabitants is too sophisticated and complicated. There are too many rules, allowances, exemptions, exceptions to the rule, etc. which make it very difficult to get an overview. In order to make the dream become true, all these exemptions and exeptions should be removed. However, as long as there is lobbying going on, it wil not happen!Lobbying is the source of all evil which makes the tax system appear like a nightmare far far away from the beer coaster dream. In other countries with less population, maybe it would more feasible. Maybe the Scandinavians are a good example. Does anyone know?
October 28 10:16 AM
Omniguru
Comment: Yes, Obama's plan will solve absolutely all problems.
November 14 03:13 PM
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