Calculate Emptor

Have you seen the new tax calculators produced by the Obama and McCain campaigns?

The idea is simple enough—make tax real for ordinary voters. Instead of talking about trillions of dollars or  95 percent of working families, describe what an Obama or McCain presidency would mean for real taxpayers.

A laudable goal, indeed. But it turns out that these calculators do little more than show how wildly misleading this sort of numbers-crunching can be.

Obama has produced a slick interactive calculator. Trouble is, it shows what would happen if you filed your 1040 on a postcard, which you probably don't. Those with more complex financial lives have no way to build in capital gains or dividends, for instance.

Also, if you say you are making more than $250,000, you don't get a comparison of how you'd do under each plan. Instead, you are told, “You will probably not get a tax cut under the Obama-Biden plan.”  Thanks for that.

McCain's version is not interactive, but purports to show the impact of each candidate's tax cuts on ordinary people—families making between $35,000 and $55,000 in wage income. You won't be surprised to know that each example shows families far better off under McCain than Obama.

But let's look closely at one example: A two-parent, one-earner family with two kids, making $42,000 and taking the standard deduction. The calculator shows this family getting a tax cut of more than $5,000 under McCain if it gets $8,000 in employer-sponsored health insurance and a tax cut of almost $6,000 if it does not. In either example, according to the McCain calculator, this family would get only $737 under Obama.

So, is Joe the Plumber right after all? Would working stiffs do better under McCain than Obama? Well, no so fast.

It turns out the typical family McCain chose to profile isn't so typical at all. We ran these characteristics through the Big Computer here at TPC and discovered that, in fact, of families making between $40,000 and $50,000, only one out of every 564 look like the happy household McCain carefully chose. That's about 7,000 tax filers. The Cleavers, it happens, live only on cable reruns.

Change just a couple of variables and the story is vastly different. Let's make them a two-earner family, and give them the average amount of mortgage interest, as well as education and child care expenses for families in their income class. What happens? Low-and-behold, they'd get no tax cut at all from McCain and more than $6,000 from Obama.

Keep in mind, too, that these TPC estimates exclude the promised health care subsidies of each campaign. So does the Obama calculator. McCain's includes the benefit of his refundable health credits, but ignores the Obama health subsidies. 

This doesn't suggest that McCain's numbers are wrong. It does show how he carefully chose his examples to show his tax plan in the best light.

The lesson here is be afraid, be very afraid, of all of these crude calculators. TPC tries to avoid these problems by showing what percentage of people in each income group win or lose under any given plan. Tax law is, sadly, immensely complicated, so using these online devices to try to estimate what a tax proposal means to you is a dangerous game. Especially if they come from those with, let us say, some self-interest in the results. Calculate away, but calculate emptor.