Taxes: The Candidates' Plans

Everyone likes to talk about Bush's tax cuts for the "rich" (see my related article "Bush's Tax Cuts for the "Rich" Actually Favor the Poor" for my opinion on that). That misnomer aside, the fact is that taxes will have to rise in order to cover the huge increase in federal spending that has occurred (and which will continue no matter which candidate is elected).

Here is a summary of how the tax code has changed under Bush and what each of the current Presidential candidates has to say regarding their plans for the tax code (the information in this post is from a May 2008 Kiplinger article entitled "Fuzzy Tax Talk"):

Tax Rates:

• Bush slashed tax rates for the poor and middle class in 2001 and 2003, all the way to 0% for those with several children (each of whom is now worth a $1000 tax credit). He also lowered the highest tax rates (for those making over $350,000) from 40% to 35% (a much smaller percentage decline, but of course since these rich folks pay the vast majority of all taxes, they received the bulk of tax savings in terms of actual dollar amount).


• McCain voted against those tax cuts initially, but in light of the current economic situation he now prefers to keep them in place and make them permanent.


• Clinton and Obama say they would leave things as is for low and middle income taxpayers but raise the marginal rates for those making more than $250,000.

Capital Gains

• Bush lowered the capital gains tax from 20% to 15% (which benefits anybody who owns or sells anything, but admittedly most benefits the "rich" who own more of those assets).


• McCain would keep the current 15% capital gains rate.


• Clinton seems in favor of restoring the 25% rate.


• Obama is eyeing a top rate of 25%, which would be higher than it was before the tax reforms of 1986.

Estate Taxes

• Under Bush the estate tax rate lowered a bit every year: from 55% with a maximum exemption of $1,000,000 (the maximum amount that can pass to heirs tax free) in 2003 to 45% with a maximum exemption of $3,500,000 in 2009. The estate tax is set to expire completely for one year in 2010 (which no one intends to allow) and then reset in 2011 to a 55% tax rate and $1MM exemption. (Bush agreed to this schedule because it was the only way to get it through congress).


• McCain wants to increase the exemption to $10MM and cut the maximum tax rate to 15%.


• Clinton favors letting $3.5MM pass to heirs tax free and hasn't specified a tax rate.


• Obama hasn't spelled out his position.

Corporate Taxes

• Bush passed a plethora of corporate tax cuts and breaks during his term; you can read about them by clicking the link at the bottom of this page. Current corporate tax rates are 35%.


• McCain would ask Congress to lower the top rate to 25% or 30%, but would go after corporate tax subsidies.


• Clinton and Obama would both be okay with leaving the top rate at 35% but would seek to tax more income earned abroad and try to close any loopholes.

Nothing much has been spelled out by anyone regarding fixing FICA, the tax that accounts for the largest amount that most Americans pay to the Treasury each month. This tax funds Social Security and Medicare.

Click here for a great summary of tax policy changes under President George W Bush.