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One of the biggest challenges facing both John McCain and Barack Obama in their commitment to provide tax relief to working-class Americans is the simple fact that millions of them already pay no personal income taxes.According to the most recent IRS statistics for 2006, some 45.6 million tax filers—one-third of all filers—have no tax liability after taking their credits and deductions. For good or ill, this is a dramatic 57 percent increase since 2000 in the number of Americans who pay no personal income taxes.
The U.S. has left the major features of its business tax system unchanged over the past fifteen years. Meanwhile, other countries have been changing theirs, potentially hurting the competitiveness of the United States. Perhaps most emblematic of the trend abroad is lower corporate tax rates in virtually all developed nations. As a result, the United States now has the second-highest statutory tax rate among OECD member nations.
SummaryRecent research on President Bush's tax relief in 2001 and 2003 has found that the lower tax rates induced taxpayers to report more taxable income. In particular, the reduction in the top two tax rates induced taxpayers to report more taxable income—an increase in the size of the tax base—to such an extent that this positive behavioral response likely offset roughly 25 percent to 40 percent of the static revenue loss of lowering the top two tax rates. This research illustrates that, while the lower tax rates have not paid for themselves, they do provide important economic benefits and can expand the tax base to such an extent that they cost the federal government substantially less revenue than the casual observer might think. Moreover, this research may provide valuable insights into the harmful effects of high tax rates as the Presidential candidates' tax plans are evaluated.
One of the biggest challenges facing both John McCain and Barack Obama in their commitment to provide tax relief to working-class Americans is the simple fact that millions of them already pay no personal income taxes.According to the most recent IRS statistics for 2006, some 45.6 million tax filers—one-third of all filers—have no tax liability after taking their credits and deductions. For good or ill, this is a dramatic 57 percent increase since 2000 in the number of Americans who pay no personal income taxes.
]How Do the Presidential Candidates Tax Plans Affect Taxpayers Marginal Tax Rates?
The Presidential candidates have proposed comprehensive tax plans that reshape tax policy in important ways. The two candidates have put forward two very different visions, with Senator Obama's tax plan emphasizing redistribution and Senator McCain's tax plan focusing more on economic growth. A perhaps neglected aspect of their tax plans is how they alter effective marginal tax rates, the amount of tax that people pay out of their last dollar of income.
The major findings include:
* To the surprise of some, even though Senator Obama's tax plan lowers taxes for the bottom four quintiles, marginal tax rates would fall only for the very lowest-income couples. Taking both income and payroll taxes into account, those at the very bottom of the income distribution would see their effective marginal tax rates fall from 27.4 percent to minus 58.6 percent due to proposed changes to the earned income tax credit and Senator Obama's new "Making Work Pay" credit.
* Most low- and moderate-income couples would see their effective marginal tax rates rise, in some cases, significantly. Indeed, some low- and moderate-income taxpayers will see their marginal rates rise to more than 50 percent.
* High-income taxpayers can also expect their effective marginal tax rates to rise—to 47.2 percent-under Senator Obama's tax plan. This increase is caused by rolling back the 2001 and 2003 reductions in the top two tax rates, curtailing deductions and exemptions at high income levels, and potentially raising Social Security taxes.
* Senator McCain's tax plan also changes marginal tax rates. His proposal to replace the exclusion for employer-based health insurance with a new health tax credit boosts taxpayers' taxable incomes by their health insurance premiums which generally pushes taxpayers into higher tax brackets, but not to as great an extent as Senator Obama's tax plan.
In recent months the Presidential candidates have been busy crafting and promoting their tax plans. In an effort to reduce the tax burden on America's seniors, Barack Obama has said that he will eliminate all income taxation for senior citizens making less than $50,000 per year. Putting aside the debate on whether this is a good policy, it might be worth exploring how such a policy would be implemented. It sounds simple enough: if you're a senior and your income is less than $50,000, then you don't pay income taxes (note that the threshold is for total income, which is greater than taxable income). But what happens when your income crosses that threshold? Obama's plan does not address this question, and it turns out to be an important question.
"Chief Executive Magazine"; sounds like an ego magazine for the "CEO"s of every "Mary Sue Jones Avon Products" and "Billy Bobs Mortgages and Storm Door Installers". This might be a useful poll if we knew the market capitalization, number of employees and net income of the "corporations" that these titans of industry oversee.
I've started, operated and sold 4 business in my life, not counting the one I still operate. I've NEVER called myself a CEO, or any other fancy title, nor have I ever heard of this magazine.
golfgod
Precisely. I visit a lot of business owners through my work and I've NEVER seen CEO Magazine on anyone's shelf, coffee table or desk. Fast Company maybe. Gimme a break CEO Magazine.
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