There are many reasons to vote for a candidate for President. Even though taxes are important they may not be, for you, the most important issue. I strongly advise everyone to review both candidates' records, their views, and their character, and make your decision. And do vote—we're blessed in the United States to be able to exercise the privilege.
That said, there are major differences between the two candidates on taxes. (Though I have opinions on other issues I'm only an expert on taxes. I'll leave the other issues for you to research.) Both candidates promise tax cuts. Senator Obama is generally against extending the Bush tax cuts while Senator McCain want to extend them. Senator Obama has about a trillion dollars worth of new programs; he hopes to fund these by "closing loopholes" and likely by cutting military spending. Senator McCain proposes fewer new programs but his revenue collections would be lower.
Actually, all of this misses an important issue—perhaps the most important issue of all. Under the Constitution, all tax legislation must start in the House of Representatives. Under the rules of the House, said legislation will start in the House Ways and Means Committee. The chair of that committee, Congressman Charles Rangel (D-NY) will end up dictating, to a large degree, what gets in the bill. And here we can look at history to see what this will be like.
In 2007 Congressman Rangel
proposed a major tax overhaul. His plan was purportedly revenue neutral. We're likely to see legislation similar to this. In some ways this looks like Obama's proposals; in other ways it doesn't. The major changes (many of which are positive) impact businesses.
So what's likely to happen if Obama wins? First, the Bush Tax Cuts will die in 2011. There's no way they can pass Congress, and even if that happened Obama would veto them. That means
everyone will have a tax increase in two years.
Second, we're likely to see even more income redistribution. Wealthier taxpayers will be more heavily taxed. Under Rangel's 2007 proposal marginal tax rates would have exceeded 50% for the wealthiest taxpayers. Expect that to occur, and this will definitely hurt small businesses and the economy at large. Taxes are just another cost, and if taxes increase, either prices will increase or expenses will be cut. Generally, this will lead to lower employment.
Third, assuming Republicans have more than 40 seats in the Senate the proposals will require GOP support to pass. This will blunt somewhat their impact.
Fourth, given that the Democratic leadership in Congress is far to the liberal side you can throw Obama's $250,000 figure into the trash can. Today, Governor Richardson stated that the real number is $120,000. In my previous post I said it was $125,000. No matter, it's
not $250,000.
No matter who is elected I do expect a permanent estate tax exclusion to be agreed upon. I expect it to be $3 million, with the estate tax being 50% above that figure. Both Obama and McCain want to see permanency here, so this is the one area where I actually expect bipartisanship to rule.
If McCain is elected the extreme redistribution plans are dead. There's no way McCain would sign such legislation.
McCain would be able to veto legislation with earmarks, and the Democrats would not have enough votes to override the vetoes. Thus, that's one plank of McCain's program that would go through (and it's a big positive).
The rest of McCain's proposals would likely never pass unless the American people rose up and forced the issue. They did this in Ronald Reagan's first term, and he was able to get a major tax proposal through Congress. I think that today's legislators are far more dogmatic in their stances and I don't see that happening.
If Obama wins I'll have more business.
Joe Kristan wrote an excellent post on what happens when the top tax rate is increased. It's extraordinarily harmful to small business, and I don't like that.
I wish one candidate would have proposed a huge simplification of our Tax Code. Ideally, I'd like to see a flat tax. Yes, it would drastically decrease my business but there are many other things I could do. Regrettably, neither candidate is proposing anything like that.
Instead, we have a choice between change that would harm the economy and likely gridlock. At least with gridlock we're probably not going to get a worse Tax Code.
