Telling the Truth About Taxes
The debate over economic policy that began this week is a welcome development, a move toward a serious election debate on real issues that will hopefully overshadow the nonsense about fist taps and who has the most lobbyists on staff. But if it's to be meaningful, the candidates must provide more details of their plans and stop mischaracterizing their opponents' position.
To that end, some advice for Barack Obama
-- Obama has been so vague that it's hard for Americans to judge his tax plans and easy for John McCain to put his overall approach in the most threatening light. Specifically, Obama has been all over the map on Social Security taxes. He makes it clear he is open to lifting the cap on earnings subject to the 12.4% tax, which is split between workers and employers and now applies only to the first $102,000 in earnings. But Obama has said at times that he will simply remove it and at other times that he would take a donut-hole approach, leaving earnings between $102,000 and $250,000 free of the tax and then reapply it at $250,000. There's a very big difference between the two. The first would be big burden on upper middle income workers and their employers -- the second would strike mainly the rich and hurt employers less.
-- Obama has also sent mixed signals about capital gains and dividends. He says he'd raise the top rate of 15% but sometimes suggests 20% as the target and other times goes as high as 28% or even 35%. Again, there's a big difference. It's time for him to be more specific.
Obama understandably wants to keep his options open should he win the presidency -- it's only common sense that a new president consider the economic conditions at the time and not be so rigid in campaign promises that it makes bargaining with Congress difficult. But he still needs to set markers now so voters have a clear idea of where he stands.
As for McCain:
-- He needs to stop distorting Obama's plans. For one thing, letting a tax break expire is not the same as raising taxes. If that were the case, we'd argue that giving taxpayers a rebate this year and not next year amounts to a tax increase, an obviously silly notion. Plus it was George Bush and a Republican Congress that hit on the scheme to make Bush's tax cuts expire after 10 years so they'd be easier to pass.
-- McCain's cute phrase -- that Obama would raise taxes on Americans "of all backgrounds" -- may be technically true, but most people hearing it believe he's saying Obama would raise taxes for everyone, which is definitely not true. In fact, he'd cut taxes on most low income Americans and eliminate them altogether for seniors making less than $50,000.
-- McCain also says a hike in capital gains taxes would affect everyone with an investment in the stock market, including those with 401(k) and IRA plans. He knows that's not true -- stocks and mutual funds held in those accounts are not subject to capital gains taxes, as we pointed out sometime ago.
-- Finally, it's not fair for McCain to add up all of Obama's tax cuts (and call them the biggest increase since World War II, which involves questionable math itself) without subtracting the cuts Obama proposes. It's fair game to criticize Obama's plans for redistributing the tax burden, but that's a different argument.