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* The fully refundable Making Work Pay Tax Credit would pay $500 to each worker and $1,000 to couples. This is reminiscent of George McGovern’s 1972 election proposal for the government to send a $1,000 check to everyone.
* The Mortgage Interest Tax Credit would provide a 10% refundable credit to offset mortgage interest payments for lower and middle income families.
* The American Opportunity Tax Credit would provide a $4,000 fully refundable tax credit for the first $4,000 of college tuition expenses.
* The Obama campaign says, regarding Health Care Tax Credits, “Obama’s health plan centers around tax credits that…will ensure that health insurance is available and affordable for all families.” These include “a new refundable 50 percent health tax credit on employee premiums paid by employers.”
* The Savers Credit would be made fully refundable and would be expanded “to match 50% of the first $1,000 of savings for families that earn under $75,000.”
* The Child and Dependent Care Tax Credit would be made refundable and expanded to allow “low-income families to receive up to a 50 percent credit on the first $6,000 of child care expenses.”
* The already refundable Earned Income Tax Credit would be expanded to “increase the number of working parents eligible for EITC benefits, increase the benefits available to noncustodial parents who fulfill their child support obligations, increase benefits for families with three or more children, and reduce the EITC marriage penalty, which hurts low-income families.” This, of course, is a welfare program, not a tax cut, because it doesn’t reduce anybody’s taxes, it pays money to low income tax filers.
* The Tax Credits for Clean Vehicles includes a $7,000 tax credit “for the purchase of advanced technology vehicles.” Presumably, this would be refundable as well because surely Obama would not deny it to the great majority of families.
Overall, this Obama tax plan is the opposite of tax reform. Tax reform involves lowering tax rates and closing loopholes. But the Obama plan raises rates and creates new loopholes.
The Obama plan is also the exact opposite of supply-side economics, which was so successful in creating the economic boom of the 1980s. Supply-side economics is based on lowering marginal tax rates, which strengthens incentives for investment, saving, entrepreneurship, business expansion, and work. But the Obama plan is based on increasing marginal tax rates for every federal tax, and so it would have the opposite effect, creating powerful disincentives to productive economic activity.
THE CENTRAL ISSUE in this campaign is whose economic policies would be best for our currently weak economy. Can we really believe that raising marginal tax rates across the board for every federal tax will be good for the economy? Even liberal Keynesian economics doesn’t support that neo-socialist policy.
In a globalized economy, these policies would slam the American economy with even bigger competitive disadvantages. The result would be less savings and investment for America, with more funds shifting to investment in other countries instead. Business would decline rather than expand. All this would mean less jobs and lower wages. The shift in investment away from America would only accelerate the decline in the dollar, quite possibly maturing in outright capital flight out of the country. The high energy prices that Obama would perpetuate and even increase further with his anti-energy production policies would also be bad for the U.S. economy. All of this is a perfect prescription for a deep recession.
By contrast, McCain’s tax proposals seem to target the exact problem areas for the American economy. America now suffers the second highest corporate tax rates in the industrialized world, averaging 40% with state income taxes. Since 1996, even the European Union has reduced its corporate tax rates from an average of 38% to 24% today. India and China also have lower rates. McCain consequently quite rightly proposes to reduce corporate tax rates from 35% to 25%, restoring American international competitiveness. Surely that is a far more promising approach for the economy than Obama’s retro tax rate increases.
McCain also proposes an important tax cut on investment through immediate expensing, which means that capital costs could be deducted in the year they are incurred, like all other business expenses, rather than spread over many years under arbitrary depreciation schedules. Making the Bush tax cuts permanent, as McCain has pledged, would leave the top individual income tax rate at 35%, and the capital gains and dividends tax rates at 15%, while eliminating the repetitive death tax. He has also pledged to abolish the Alternative Minimum Tax (AMT) and keep the Internet tax free.
These policies would spur investment, not only domestically but from international sources as well. This would shore up the dollar, leaving the Fed more room to boost the economy. New and existing businesses would surge and expand hiring, producing more jobs and higher wages.