Why We’re Planning for Higher Taxes

We thought it would be interesting to look at the presidential candidates’ positions on taxes. As you might expect, Senators Obama and McCain propose very different solutions.

Looking at the table below, which we obtained from the non-partisan Tax Policy Center (www.taxpolicycenter.org), BWFA concludes that families with incomes over $250,000 will likely see a tax increase if Barack Obama is elected. If John McCain is elected (and if he can get the votes in what will probably be a Democrat-controlled Congress), little will change for upper-income earners. The Democrats are offering new tax relief to lower-income families, while John McCain is proposing to leave the current tax legislation in place.

Topic Barack Obama John McCain
Capital Gains Increase 15% capital gains rate to 20%. Keep current rates on dividends and capital gains.
Tax Simplification Give taxpayers the option of pre-filled tax forms they can verify and sign. Give taxpayers the option of an alternative tax system that has two rates and a standard deduction.
Alternative Minimum Tax (AMT) No specific plan Phasing out AMT
New Tax Cuts Making Work Pay Credit – up to 6.2% of earnings up to $8,100

Universal Mortgage Credit – 10%

Small Business and Microenterprise Initiative – provide training and technical training for small businesses, 20% credit up to $50,000 of investment in small ownership operated businesses

American Opportunity Tax Credit – credit first $4,000 of college education

Businesses can write off equipment and technology investments in 1st year

Reduce corporate tax rate

Suspend federal gas tax (18.4 cents per gallon) through Labor Day 2008

Adjustments to existing credits Earned Income Tax Credit – increase benefits for taxpayers making minimum wage, increase benefit to families with 3 or more children

Child and Dependent Care Tax Credit – expand the credit to 50% of child care expenses

Savers Credit – 50% government match on 1st $1,000 (up to $100,000 of income)

Raise personal exemption for each dependent from $3,500 to $7,000
Bush Tax Cuts Permanently extend child credit; marriage penalty relief; adoption credit; 10%, 15%, 25% and 28% rates and Earned Income Tax Credit; renewable electricity production credit.

Repeal tax cuts for those making over $200,000 or $250,000, and restore 36% and 39.6% tax rates.

Freeze estate tax at 2009 levels and extend after 2011.

Make the Bush income and investment tax cuts permanent. *

(* Note: John McCain has not identified a specific estate tax reform plan.)

Paying for the plan Close corporate loopholes and crack down on international tax havens

Pay for middle class tax relief by increasing the highest bracket for capital gains and dividends and closing the carried interest loophole

Eliminate earmarked projects from the budget, freeze nonmilitary discretionary spending for 1 year, eliminate programs, broaden the tax base

Our prediction: No matter how you slice it, with a likely Democratic majority in Congress, you’ll see increased taxes. BWFA is taking this into consideration when doing your investment, retirement, estate and tax planning. We will follow the changes made to tax law and help our clients plan for them.