What the Obama and McCain Plans Would Mean for Real Taxpayers
How will ordinary families be affected by the tax plans of John McCain and Barack Obama? To get some answers, I asked Greg Leiserson, TPC’s crack modeler, to develop some examples.
The results mostly track what we already know—that McCain would cut taxes somewhat for nearly all, and a lot for the very wealthy, and Obama would cut taxes substantially for low- and moderate-income families and raise them dramatically for those in the upper brackets. But there are also some surprises.
Before I look at how the tax cuts would work for some typical families, keep in mind that TPC allocates a share of any changes in corporate taxes to individuals. Thus, their tax liability not only includes what happens to their income taxes, but also to their share of corporate taxes. Economists do this since companies don’t actually pay tax, the people who own the companies do. (Workers pay some share too, but since no one can agree on how much, TPC allocates all the tax to capital).
With that out of the way, here is what the numbers look like:
A single mom, with one child, making $15,000-a-year (in adjusted gross income) would get a $17 tax cut from the McCain plan, but see a $500 reduction from Obama, thanks to his new work credit.
A newly-married young couple with no kids, making a combined income of $50,000, would get a $36 tax cut from McCain, but a tax reduction of about $1000 from Obama. The big difference again: Obama’s work credit.
By contrast, think about the classic suburban 1950s sitcom family, with two kids but only one wage earner, who makes $75,000. Ward and June Cleaver would do a bit better under McCain, who would cut their taxes by $800, while Obama would trim their taxes by only about $500. McCain’s increased dependent exemption for Wally and the Beave trumps Obama’s work credit.
Now, let’s look at a two-lawyer family, making $200,000, with one child. McCain would give them a tax cut of roughly $7000, while Obama would trim their taxes by about $5000. The big reason: each candidate would patch the Alternative Minimum Tax.
A married baseball player who takes home $2 million and has one child might want to go to bat for McCain, who would give him a tax cut of more than $30,000. Obama would raise his taxes by $135,000. Talk about getting one in the ear.
For seniors, the pattern is a bit more surprising, since Obama has been touting his tax cuts for the elderly. Obama would give an unmarried senior making $35,000 a tax cut of $3000, which would wipe out her tax bill. McCain would give her a tax cut of about $250.
But now let’s look at that her neighbor, who makes $75,000 from her Social Security, pension, and other income. Obama would actually raise her taxes by about $600, while McCain would give her a $600 tax cut.
The same thing would happen to a very poor elderly couple making just $10,000. Obama would raise their taxes by $150, while McCain would cut them by about $170.
Of course, these are all averages. Some families might benefit more and others less. But this should give you a pretty good idea of the winners and losers.