Tax This; Tax That

When it comes to taxes, John McCain and Barack Obama both want to ease the burden and spark the economy. The difference is in how they would go about doing it. Below, we go behind the usual campaign rhetoric -- Your plan is a job killer! Yours is a giveaway to the rich! -- and dig into the specifics of each candidate's plan.

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Few Americans would pay more taxes under McCain's plan, though not everybody would see a tax cut. The plan calls for maintaining George W. Bush's tax cuts, which are due to expire at the end of 2010, including the low rates on capital gains and corporate dividends, currently capped at 15 percent. McCain would gradually increase the exemption for dependents from $3,500 to $7,000 by 2016. He also promises to fix the Alternative Minimum Tax by permanently indexing its exemption to inflation. Plus, he would cut the estate tax, exempting the first $5 million and limiting the levy on the rest to 15 percent.

McCain advocates banning taxes on online sales and opposes any new levies on cell phone calls and text messages; he also would require that any future tax increase receive a three-fifths-majority vote in Congress. And he would give Americans the opportunity to opt out of the current tax structure for what he calls a "vastly less complicated system with two tax rates and a generous standard deduction."

As for the candidate's business tax agenda, McCain would lower the top corporate income tax rate from 35 percent to 25 percent; he has also proposed, without offering specifics, measures that would expand the corporate income tax base. He has pledged to end preferential treatment for oil and gas companies and would establish a permanent research and development tax credit of 10 percent of wages spent on R&D. And for five years, businesses would be able to expense certain equipment purchases immediately. On the other hand, he would repeal the Section 199 deduction for "domestic production activities," a deduction meant to encourage businesses to keep jobs on U.S. soil. The deduction will reach 9 percent in 2010.

What the Experts Say: According to an analysis by the nonpartisan Tax Policy Center, most Americans would get a smaller tax cut under McCain's plan than they would under Obama's proposal. On average, only the top 20 percent of earners -- those with incomes of more than $112,000 in 2009 -- would do better under McCain. As for the centerpiece of McCain's business agenda, the center notes that "other countries have been lowering their corporate tax rate and broadening the base, and similar changes in the United States could be beneficial."

Budgetary Impact: The Tax Policy Center estimates that McCain's agenda would cost the Treasury $4.2 trillion over 10 years. Not so, the campaign counters, noting the significant (and largely unspecified) spending cuts McCain has promised -- he has pledged to shrink entitlement programs and eliminate congressional earmarks -- as well as the economic growth that would be sparked by lower tax rates.

Key Proposals:

• Extend the Bush tax cuts
• Dramatically scale back the estate tax
• Make permanent the Economic Stimulus Act's more generous limits for expensing
• Lower the corporate tax rate

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Obama would make the Bush tax cuts permanent for most Americans and has also proposed a variety of tax credits. Among them: a $1,000 refundable tax credit per family to offset payroll taxes; expanding the Child and Dependent Care Tax Credit to make it refundable and allow low-income earners to claim up to 50 percent of the first $6,000 of child care costs; a $4,000 refundable credit against college tuition; extending the Earned Income Tax Credit to more low-income Americans; eliminating income tax for seniors making less than $50,000; a refundable mortgage interest credit of up to 10 percent; and a fix to the Alternative Minimum Tax.

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