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.

With the candidates attacking each other's tax platforms, agreement over even tax policy basics seems elusive. But there is an exception. Both candidates want to encourage workers to save more through the Auto IRA.

The essence of the Auto IRA is to make retirement saving automatic. It would mandate that employers deposit a portion of each paycheck of the 75 million workers without employer pensions into an individual retirement account administered by a private financial institution. Workers could opt out of the program, but the default option — if the worker does nothing— would place the employee on a path to better retirement saving.

The proposal is essentially costless to businesses since the saving contribution would be directly withdrawn from workers' paychecks. Firms would receive a small tax credit to offset any administrative costs.

This approach is novel because it doesn't change the incentives to save — the tax benefits for IRAs remain the same. Instead, it just greases the wheels on retirement saving. Workers who didn't save before because they were overwhelmed by the paperwork of creating an IRA, or felt intimidated by investment decisions, would now be automatically enrolled in an account unless they choose not to participate.

The automatic enrollment concept succeeded remarkably well when applied to employer-sponsored 401(k)s. One research paper found that automatically enrolling employees in an employer pension more than doubled the participation rate for new hires, especially for lower-income and minority workers — groups that traditionally have lower rates of saving. In this way, the tax benefits of retirement saving, frequently realized by higher-income workers, would now be more evenly distributed.

Tax policy is fraught with tough choices, but this proposal isn't one of them. McCain supports it. Obama endorses it. Bi-partisan bills establishing the Auto IRA have been introduced in both the House and Senate. Let's hope that with an ally in the White House, Congress gives this plan due consideration and puts millions of workers automatically on track to better saving.

Let's face it, in our slumping economy, there is only one growth industry left: Political campaigns. Well, maybe two, if you count bankruptcy lawyers, but we'll worry about them another time.

Think of it, while consumption on everything from autos to sofas has slowed to a trickle, campaign spending is booming. Candidates this year have raised—and are likely to spend—in excess of $5 billion. Barack Obama alone may spend something approaching $1 billion.

Even better, it is all domestic consumption. With a normal fiscal stimulus, a lot of money leaks overseas as consumers buy stuff like Korean HDTVs or Malaysian shirts. The banks seem to be mostly hoarding the $250 billion Treasury just gave them. But politicians never leave a nickel on the table, and they spend almost every cent at home. Consultants. Phone banks. Hotel rooms. Beer. Media buys for all those ads with the ominous music. Even the bumper stickers and yard signs are made in the USA.

Much of this spending is even countercyclical. Plenty of dough is going to economically hard-hit battleground states like Ohio, Florida, and Nevada. Newspapers, which need every dime they can scrounge, are selling desperately-needed ads.

Even better, campaign spending does not rely on bank credit. Trust me, no lender would ever give money to a candidate without first demanding rock solid collateral. This makes politics a mostly cash (and credit-card) business, indifferent to the swings in the Libor rate, or the Lehman Bros. bond index. BTW, does anyone else wonder why we are still using a Lehman Bros. index? Aren't these guys out of business? And who is paying the poor fellow who runs these numbers all day long? Has anybody told him he's been laid off?

Truth is, no matter what I say, the electioneering won't stop. If Obama loses on Tuesday, the Hillary 2012 express will be fired up by, say, Wednesday. If McCain is defeated, it won't be much longer before Sarah Palin saddles up her snowmobile, throws on her good Republican cloth coat, and heads to Iowa for some meet-and-greets. Mitt Romney will grab his trusty hunting rifle and trundle off for some door-belling in New Hampshire before the last absentee ballot is counted.

So, why stop on Nov. 4? Let's keep the campaign going. It is good for the economy. It is good for America.

The ordinarily very astute EconomistMom blithely asserted that there is "a lot of historical evidence suggesting that one-party government tends toward fiscal irresponsibility." Maybe not. Some time ago, I asked Urban Institute RA, Sonya Hoo, to review the evidence from states, over time, and across countries. She found the evidence of such an effect to be quite ambiguous.

To see why, suppose that there is a McCain Administration—admittedly a long shot at this point. Senator McCain might decide to veto all of the Democrats' spending bills and they might thwart all of his tax promises (producing gridlock and fiscal responsibility by default). Or he might decide he doesn't want his entire legislative agenda to be held hostage to partisan gridlock.  In that case, horse-trading could lead to more spending and lower taxes than we'd see in an Obama administration.

The effect of divided government thus depends on whether McCain's promise of bipartisanship trumps his promise to wield a ruthless veto pen—something that's impossible to predict a priori.

When TPC analyzed Senator McCain’s proposal to replace the income tax exclusion for employer-sponsored health insurance with flat refundable tax credits of $2,500 for single coverage and $5,000 for family coverage, we found  only modest net effects on coverage.  Our model predicted that more than 21 million people would gain insurance coverage in the individual nongroup market by 2013 while 16 million would lose employer-based coverage.  Despite a $1.3 trillion price tag over the next decade, the proposal would yield only modest and temporary gains.

A couple of factors drove that result.  One was the $7-10 billion per year that Senator McCain’s campaign says it would spend on its Guaranteed Access Plan (GAP). That’s a fraction of the $100 billion annual cost we estimated for covering those with serious health problems who’d otherwise lack insurance.  Ignoring the campaign’s statements about its own plan, John Sheils of the Lewin Group assumed that the government would provide $470 billion in subsidies over ten years ($47 billion per year) for the GAP, half of it financed by a new assessment on insurance premiums.  By Sheils’s estimate, 5.8 million people would gain coverage under that plan.  Unlike Sheils, we judged the funding proposed to be inadequate and the plan’s details too nebulous, so we did not model the GAP’s effect on either cost or coverage. 

Sheils also concluded that Senator McCain’s proposals to limit health care costs would be effective, something my colleagues in the Urban Institute’s health policy center doubt.  Moreover, Sheils appears to assume that firms are less sensitive to changes in the price of health insurance than TPC does, which means that fewer firms drop coverage.  All told, Sheils’s more optimistic scenario produces much more coverage.  Lewin estimates that the number of uninsured would fall by 21 million people in 2013.

There is one way that McCain’s plan might really boost coverage:  if just about anything could be labeled as “insurance.”  With no minimum standards, insurers could design products that cost less than the tax credit amounts, even for people with serious pre-existing conditions.  For example, they might sell a single policy that covers the first $2,000 of medical expenses for a $2,500 premium.  This sounds like a bad deal, but if the entire tab is paid by the federal government and it is all a sick person can find, it’s better than nothing.  State regulators couldn’t block such policies because Senator McCain’s plan would allow insurers to market products across state lines, meaning that shady insurers could just set up shop in a state with no regulation.

Of course, token insurance that doesn’t cover major costs would be cold comfort to those with expensive health problems, but it would make the statistics on coverage look better.  And if you think that insurers would not offer such products or that consumers would not use their tax credits to purchase them, consider the experience with the short-lived health EITC, a small, but poorly designed subsidy intended to help low-income families acquire health insurance coverage for their children.  Unscrupulous insurers sold nearly worthless policies—often using fraudulent methods—to credit recipients according to a 1993 Congressional investigation (summarized by CBPP).

And, despite its limited value, the coverage gains would carry a heft price tag.  If all uninsured people bought non-group coverage qualifying for the tax credits, the cost of the plan could almost double, from our estimated $1.3 trillion to $2.5 trillion. 

All that said, it is remarkable that a conservative Republican is proposing more than a trillion dollars in refundable tax credits for health insurance. Those seeking a bipartisan compromise that could significantly expand health insurance coverage might take heart from that.  But then again, Senator McCain also insists that his plan, in fact, has no budgetary cost over ten years, suggesting that he might not really be serious about the tax credits.

Sigh...

A few more thoughts on "Barack the wealth spreader," as Sarah Palin now describes the Democratic nominee. I'm inspired in part by commenter D.F., who wrote this morning, "Tax rebates don't work. We need a flat tax." First off, John McCain is right when he says Obama's tax plan is redistributionist, if by that he means his rival would give his biggest tax cuts to the lowest earners. TPC calculates that Obama would cut the average tax rate for the lowest 20 percent of earners by more than 5 percent while he'd raise the rate by a roughly equal amount for the top 1 percent.    more »

John McCain says Barack Obama’s enthusiasm for refundable tax credits amounts to socialism. Wow. This is interesting for so many reasons. To start, the mother of all refundable credits is the Earned Income Credit, which is the largest poverty program in the U.S. and distributes $42 billion to more than 20 million low-income families. It was enacted during the Presidency of well-known leftist Gerald Ford, and has been expanded repeatedly ever since, most recently by President Bush in 2001.    more »

A commenter has asked an interesting question about the relationship between small business income and the number of workers in these firms. The FactCheck.org item Len Burman and Eric Toder cited in their blog post this morning reports that 20 million small businesses—many sidelines businesses or hobbies—;have no employees at all besides the proprietor. But it would be good to learn more about the rest. We’d like to hear from any of you who have other data or thoughts about this question.    more »

Poor Joe the Plumber has become a political metaphor: something no one ever wants to be. As we all know by now, based on his actual (rather than aspirational) income of $40,000, Joe would get a slightly bigger tax cut under President Obama than President McCain. But in one sense, even though the real Joe doesn’t own a business, most small business owners, like Joe, also have very modest incomes. Based on a sample of individual income tax returns, TPC finds that among tax units that receive most of their income from their own business, a partnership or a farm (reported on schedules C, E, or F), more than half have income below $30,000 and 80 percent make less than $100,000. (Table T07-0206)    more »

Talk about a bad idea. Barack Obama and John McCain both want to give people tax incentives to empty their retirement savings accounts. They’d help contribute to a disastrous old age for many middle-class seniors, even as they provide a windfall to wealthy savers. In the name of relieving financial hardship caused by the economic slowdown, Obama would allow penalty-free withdrawals from 401(k)s, IRAs, and the like of up to $10,000 for the next two years. McCain’s plan, which is even worse, would cut the tax rate to 10 percent on up to $50,000 of withdrawals in both 2008 and 2009. Workers contribute pre-tax money into these accounts and, currently, withdrawals are taxed at rates up to 35 percent.    more »

TPC's Katherine Lim has crunched some numbers on John McCain's proposal to temporarily cut capital gains tax rates from 15 percent 7.5 percent. In 2009, under a plan that lowers taxes on both gains and dividends, those making $1 million or more would get two-thirds of the benefit, and an average tax cut of more than $72,000. Those making less than $50,000 would get, on average, nothing.    more »

Both Barack Obama and John McCain have rolled out new economic stimulus plans. Each is a hodgepodge of some good ideas, some not-so-good, and some potentially awful. Obama says his new ideas would cost $60 billion. McCain says his would cost about $52 billion. Here is a quick look at what they have in mind: The centerpiece of Obama’s proposal is a new refundable tax credit for companies that add domestic jobs. Businesses would get $3000 for every net new full-time worker they hire. Any business would be eligible, even those that pay no taxes.    more »

A recent TPC< analysis looked at the effect of both candidates' plans on marginal tax rates–the tax paid on an additional $1 of income. Spurred by a comment from Greg Mankiw, we also reported an alternative analysis that tilted the numbers more in Senator McCain's favor. That prompted a complaint from Obama advisors pointing out that TPC's analysis failed to consider how the McCain health plan could boost marginal effective tax rates.    more »

The most interesting thing I heard in last night's debate between John McCain and Barack Obama (in fact, the only interesting thing I heard) was McCain's call for a new federal effort to directly refinance residential mortgages into new low-interest loans. The plan got me thinking about a provocative way to pay for it—eliminate the mortgage interest deduction for these new loans.   more »

With Barack Obama and John McCain arguing about who is going to cut taxes more, I though it would be interesting to find out what investors think is going to happen to their tax bills in the coming years. So, in a totally unscientific survey, I asked four money managers what their clients think. The results were striking: Every one said their clients overwhelmingly believed their taxes would rise in the coming four years, no matter who is president. As you watch tonight's debate, keep in mind both candidates are desparately pitching tax cuts to voters who don't believe either will deliver.    more »