President Obama and his administration are seeking almost a $1 trillion tax increase over the next decade on US taxpayers earning more than $200,000. He also wants to take an additional $400 billion from businesses even as it retools a proposed crackdown on international tax-avoidance techniques; according to a Feb 2, 2010 Business Week article.

Believe it or not, the Obama income tax proposal would actually reinstate income tax rates enacted by former President Bush 10 years ago. The income tax rates for single Americans making over $200,000 or joint filers earning more than $250,000 would increase to 36% and 39.6% respectfully. The plan also calls for eliminating preferences for oil and gas companies, life-insurance products, executives of investment partnerships and U.S.-based companies that operate overseas.

“This set of tax reforms strikes a balance between targeted tax cuts to spur investments in job growth and innovation here at home, middle-class tax relief to make our tax system more fair, measures to crack down on abuses that send jobs overseas, and long-term fiscal discipline,” Treasury Secretary Timothy F. Geithner said in a statement.

Obama’s proposed $143.4 billion in new tax cuts for individuals who earn under $200,000. While the budget sets out $93.5 billion in gross tax reductions for businesses, overall they would face a net tax increase.

“The proposed budget’s $300 billion in tax relief over the next 10 years for individuals, families, and businesses is mostly targeted and limited, often to people who don’t have to pay any taxes,” said Senator Charles Grassley of Iowa, the ranking Republican on the tax-writing Senate Finance Committee. “The tax increases in the budget dwarf the tax relief.”

President Obama asked Congress to extend all of Bush’s tax cuts that apply to Americans earning under $250,000. He also proposes almost doubling a tax credit that helps Americans pay for child care and increasing federal subsidies for Individual Retirement Accounts.

The budget assumes the federal estate tax, which expired Jan. 1 and was replaced with a capital-gains tax, will be reinstated retroactively with a 45 percent rate applied when married couples’ estates exceed $7 million. If Congress doesn’t act, the estate tax in 2011 will be reinstated to a 55 percent rate applied to estates valued at more than $1 million.

Obama’s budget also assumes Congress will continue to index the alternative minimum tax for inflation. The minimum tax can impose higher rates on families earning between $75,000 and $500,000 when their deductions are too high relative to their income. It was originally intended to affect only millionaires and is now ensnaring people with lower incomes because it was never indexed for inflation.

The Obama tax budget proposal will most certainly face opposition from Congress.  This proposal will also be opposed by the influential and wealthy US taxpayers.  Is Obama’s tax proposal political hari-kari?

source: businessweek.com

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.