Economy

A Comparative Tax Story: Obama, McCain, and Ike

Why this November's election may matter more to America's super-rich, in terms of the bottom-line, than any other in U.S. history.
If you had $1 million riding on the result of the 2008 presidential election, would you be paying some extra close attention to the race between Senators John McCain and Barack Obama? America's super-rich -- those swells who make up the nation's top 0.1 percent of income-earners -- now find themselves in that exact position.

In fact, this November's election may matter more to America's super-rich, in pure dollars and cents, than any other election in U.S. history.

In 2009, the 140,000 households in the top 0.1 percent will pay, on average, $1 million more in federal taxes if Barack Obama makes his way to the White House -- and wins congressional approval of his tax plans -- than they would if victory goes to John McCain.

Who says so? The Tax Policy Center, a nonpartisan, Washington, D.C.-based research group. The Center, a joint effort between the Urban Institute and Brookings Institution, last week released a new report billed as "A Preliminary Analysis of the 2008 Presidential Candidates' Tax Plans."

Put an emphasis on the "preliminary." Neither the McCain nor Obama camps, the Center notes, have spelled out their tax plans in intricate detail. But the two candidates have floated enough specifics -- in speeches, policy papers, and interviews -- to allow some meaningful comparisons.

If Senator McCain's proposals and preferences on tax policy should become law, the Center calculates, the nation's most affluent 0.1 percent -- taxpayers who this year will make at least $2.9 million in income -- will pay $269,364 less in federal taxes than they would pay if current tax law stays in place.

If Senator Obama gets his way on taxes, these same households would pay $701,885 more, on average, in 2009 than they would pay under current law. The gap -- for the super-rich -- between Obama and McCain: nearly $1 million.

The gap would actually run somewhat larger. Last week's Tax Policy Center report appeared just before Senator Obama detailed his plan to subject income over $250,000 to Social Security payroll tax. The Tax Policy Center estimates don't reflect this higher Social Security tax on the incomes of the wealthy.

What about Americans with less than $2.9 million in annual income? How would they fare under the Obama and McCain tax proposals?

Households currently making under $18,981 will save an average $567 in 2009 if Obama's tax proposals go into effect and $19 if McCain's plans become law. More middle-class households -- those making between $37,595 and $66,354 -- will average $1,402 in 2009 tax savings if Obama prevails and $319 if the nod goes to McCain.

The normally understated Tax Policy Center has a word for all these differences: "stark."

But if you really want "stark," don't compare tax burdens under Republican John McCain to tax burdens under Democrat Barack Obama. Compare tax burdens under Republican McCain to tax burdens under former Republican President Dwight D. Eisenhower.

In 2009, says the Tax Policy Center, taxpayers making over $2.9 million a year will pay 28.3 percent of their incomes, on average, in federal taxes if John McCain tax policy becomes law and 39.2 percent if Barack Obama has his way.

These percentages factor in all major federal taxes, not just the individual income tax but estate and even corporate income taxes as well. Following Congressional Budget Office practice, the Tax Policy Center assumes that individuals ultimately bear the cost of corporate income taxes via the impact of these taxes on dividends, capital gains, and other forms of unearned income.

In Eisenhower's 1950s, America's richest paid far more in taxes than they would under either the McCain or Obama plans. In 1959, a half-century from 2009, taxpayers who made over $2.9 million, in today's dollars, paid over 45 percent of their incomes in individual income tax alone.

These 1959 wealthy also faced higher taxes on corporate profits and much higher estate taxes on the property they left behind at death. The top tax rate on estate wealth in 1959: 77 percent. McCain is proposing to cut the top estate tax rate down to 15 percent. Obama wants it frozen at the 45 percent rate that'll be in effect under current law in 2009.

In short, in Dwight Eisenhower's day, the super-rich paid, on average, over twice as much of their incomes in taxes as they will if John McCain tax law goes into effect. The good news for the super-rich: In November, Ike won't be on the ballot.
Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.
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