Our leaders in Washington are working hard on a tax relief compromise that will extend the Bush-era tax cut packages enacted in 2001 and 2003.

A summary of the Obama-GOP tax deal, released by the Senate, is now pending on the Senate floor. The tax cut compromise summary, obtained from the Senate Democrats website, calls for temporary tax relief in the following areas:

• Temporary Extension of Tax Relief
• Temporary Individual Alternative Minimum Tax (AMT) relief
• Temporary Estate Tax Relief
• Temporary Extension of Investment Incentives
• Temporary Extension of Unemployment Insurance
• Temporary Payroll Tax Holiday
• Temporary Extension of Certain Expiring Provisions

Here is the summary of the Obama-GOP tax cuts compromise:

Tax Cuts Compromise Package Summary
December 9, 2010

I. Temporary Extension of Tax Relief

Two major bills enacting tax cuts for individuals expire at the end of 2010: the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The following package extends these provisions from EGTRRA and JGTRRA for an additional two years, through 2012, and will provide important tax relief to American taxpayers. The following package also extends a number of provisions enacted as part of EGTRRA that were modified in the American Recovery and Reinvestment Act.

More on The Obama–GOP Tax Relief Compromise

We are hearing so many different intepretations of what the presidential tax plans will or will not do.  Here are the details of the John McCain tax plan:

1. Over five years, the starting points for the 28% tax bracket would be increased, from the current $43,050 in taxable income to $70,000 for couples, from $34,550 to $52,000 for single parents, and from $25,750 to $35,000 for singles without children. Note that the dollar figures refer to taxable income, so that, for example, families of four would get no benefit until their total income exceeds about $65,000 (in 1999 dollars). The full benefit would not be realized until income approaches $100,000. Because the new starting point for the 28% bracket for couples would be double the single level (although not twice the level for single parents), the change would reduce “marriage penalties” for many couples.
2. The $500 per child tax credit would be increased to $750 per child in 2001 and to $1,000 per child in 2002 and thereafter.
3. The estate tax exemption would be increased from the current $1 million to $5 million (effectively $10 million for couples), phased in over ten years.
4. Over five years, the standard deduction for couples would be increased by 19% (to twice the single amount) and for single parents by 16%. These changes would provide tax relief to many filers who take the standard deduction, as well as to some itemizers. (About 2 million current itemizers would switch to the increased standard deductions.)
5. Up to $200 ($400 for couples) in interest and dividends would be tax-exempt.
6. Limits for 401(k) plan contributions would be increased to $15,000 a year, and similar changes would be made to certain other kinds of retirement savings plans.
7. “Medical Savings Accounts” would no longer be limited to 750,000 taxpayers; the annual contribution limit on “Education Savings Accounts” would be doubled to $1,000; and new tax-deferred “Family Savings Accounts” would be provided for bottom-bracket taxpayers (few of who could afford to take advantage of them).
8. Long-term care insurance premiums would be made deductible.
9. Military personnel overseas would be exempt from tax on some or all of their earnings.
10. A 100% tax credit would be provided for gifts to public and private elementary and secondary schools, up to $200 a year. If all eligible taxpayers took advantage of this free opportunity to help their local schools, this provision could cost more than $17 billion a year (in 1999 dollars). Sen. McCain’s estimate of the size of his tax cuts does not appear to reflect the large potential cost of this school-aid program, which could be implemented more straightforwardly and with better targeting through direct grants to schools. (The distribution tables that follow do not include this credit, which appears to be intended as a backdoor way to funnel money to schools, rather than as a tax relief program.)
11. To offset much of the cost of his tax cuts, Sen. McCain proposes to curtail numerous corporate tax breaks, totaling $151.7 billion over five years. Sen. McCain provides an illustrative list, but does not specify the exact loopholes he would close.

With less than a week before the U.S. election, it seems everyone is focusing on the Obama tax and economic plan, but according to an article published by Bloomberg, McCain’s economic recovery plan deserves to be looked at.  His economic recovery and tax plan calls for cutting the corporate tax, preserving the fifteen percent capital gains tax, letting businesses expense technology and equipment, freezing government spending and seeking long term solutions to economic recovery.  Consider this…

John McCain’s plan to bring down the corporate tax to 25 percent (a .10% cut) would induce foreign investment to remain. It would also continue the rally of the U.S. dollar.

John McCain is sticking to his guns when he says he will make Georg W Bush’s income tax cuts permanent. And he is all for preserving the 15 percent tax rate on capital gains and dividends.  Why is this important?

What experts are discovering about our current financial crisis, is there are plenty of mediocre companies sitting in portfolios.  Many people are trying to get out of them now, and many more will in the future. But if the capital gains rate is increased, it may deter those who otherwise would bail out of these companies. What this does, is prevent the shift of dollars from these “dogs” to investment in new companies with better products.

The McCain plan would speed up the economic recovery and improve the quality of it.  McCain’s plan suggests cutting the capital gains taxes in half in the next two years.  Although not a short term solution to the economic problem, it seems a wise choice in the long run.

A good idea is to allow companies to expense 100% of it’s investment in technology and equipment, in the same year they buy it. The current formula allows companies to write off half of the expense in the first year, and then depreciate the balance over a longer period. This would be especially beneficial to areas of the country that invest in heavy machinery, like Cleveland and Detroit.  However, the McCain plan calls for write-downs over a 3 or 5 year depreciation schedule.

McCain’s plan on energy is to build 45 new nuclear plants by 2030. This “green” energy source would significantly cut U.S. dependence on foreign oil, which would maintain stability in the financial markets. It would also create 700,000 jobs. The construction of these plants could be financed by the U.S. Treasury.

The McCain plan calls for an overall freeze on government spending.  Good luck with this, we’re all smart enough to know that Washington isn’t capable of passing it into law. But McCain’s disposition may help make some inroads on this issue.

McCain’s economic plan is a dynamic one, looking at the growth and competitive environment generated by tax cuts.
As noted in the Bloomberg post,”The Institute for Research on the Economics of Taxation finds that the McCain tax plan would add 0.5 percent to the annual growth rate for the private sector for five years. Obama’s plan would subtract 0.7 percent a year in growth for the same period. As Steve Entin of IRET notes, politicians have hurt growth before by ignoring such effects.

The Obama vision is all static. It’s better to redistribute, he says, because we sure aren’t going to grow. This attitude ignores the possibility of expansion, and it’s one that many lawmakers share, seeing only belt-tightening in the future. On some days, these gloomsters even include McCain.”

John McCain’s tax and economic plan is one that needs to taken seriously.