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InsiderOnline Blog: October 2008

What the Candidates’ Tax Plans Do

The Heritage Foundation has two new papers assessing the presidential candidates’ tax plans. Here is the conclusion of a report from the Center for Data Analysis:    

Senator McCain’s plan is substantially better at spurring economic growth than Senator Obama’s. This is not surprising, since Senator McCain focuses on economic growth and job creation while Senator Obama focuses on the redistribution of income. As Tax Policy Center Director Len Burman states, “the major themes of the two plans are, in the case of Senator McCain’s plan, that the major emphasis is on economic efficiency—cuts marginal tax rates, improves economic incentives…. In the case of Obama’s plan, the goal is primarily to improve pro­gressivity…to lower tax burdens on low-income people and raise them on higher-income people.” … Each presidential candidate achieves his stated goal, with Senator McCain generating the most new jobs, growth, and additional income for individuals. Sen­ator Obama’s plan drives up the tax rate for individ­uals with annual incomes above $250,000 and redistributes money to workers with lower incomes.

And here is J. D. Foster’s similar take on the plans:

Through the lens of sound tax policy, both McCain’s and Obama’s tax plans would leave the tax code more complicated than it is today. Even so, McCain’s plan has important advantages through its focus on keeping tax rates low—and lowering them further in some instances—while improving incentives for investment and correcting an extremely harmful tax distortion at the heart of much of the trouble in America’s health care financing system.

In contrast, the Obama plan raises income tax rates, raises payroll taxes on a delayed basis, and actively increases the use of the tax system to redistribute income to those who pay little or no income tax. Each of these aspects move the tax code in a decidedly inappropriate direction.

On balance, the McCain plan would be decidedly better for economic growth, largely because it would lower tax rates while the Obama plan would raise tax rates. Under the McCain tax plan, the economy would be expected to be about $320 billion greater, and average household income about $2,600 higher than would be the case under the Obama tax plan.

Below are some graphs detailing the plans’ impacts on key measures of the economy. Note that the improvement shown by both plans is relative to a baseline that assumes none of the Bush tax cuts are extended.  

Posted on 10/16/08 12:17 PM by Alex Adrianson

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