McCain, Obama offer competing tax plans

According to this article on income taxes, Presidential hopefuls John McCain and Barrack Obama are offering competing tax plans:

Sens. Barack Obama and John McCain offer voters a stark if orthodox choice on the economy. Democrat Obama would sharply skew tax cuts and spending toward lower-income people and social programs. Republican McCain would just as sharply tilt policy toward upper-income classes and business investment.

With gas prices, food prices and home foreclosures all headed skyward, the current economic slowdown is tailor-made for a presidential election, hitting middle-class pocketbooks in ways not seen since Jimmy Carter lost to Ronald Reagan in 1980. The economy has displaced the Iraq war as the central focus of the election.

The economic situation of the government, however, may leave orthodox economic remedies outdated. Intense new budget pressures, from the enormous cost of the Iraq war to escalating health care spending for an aging population, will pitch the next president into choices not nearly as palatable as either candidate's campaign promises imply.

Tax fights promise to engulf the next administration almost immediately. In 2010, President Bush's $3.6 trillion tax cuts expire, meaning the next president will have to propose new tax laws upon taking office in 2009.

As much as Obama blasts the Bush tax cuts, he would expand large portions of them, promising even more tax cuts for middle- and lower-income groups. Taxes would fall most sharply for lower-income groups while rising sharply for top earners, according to a new analysis by the Tax Policy Center, a joint think tank of the center-left Brookings Institution and Urban Institute. Obama's campaign contends that no one earning less than $250,000 a year would see any tax increase.

For those earning more than $250,000, however, taxes could rise to levels not seen in decades. If Obama imposes, as he has suggested, higher Social Security payroll taxes on top income earners, they could see an effective tax rate of more than 55 percent of their income, not counting state income taxes, the Tax Policy Center analysis showed.

McCain goes in the opposite direction.
Seeking to bolster his standing with the Republican right, he moved quickly to embrace the Bush tax cuts that he had voted against, aligning squarely with GOP tax orthodoxy.

He would make the Bush tax cuts permanent, leaving in place all the middle-and lower-income tax cuts Obama wants to expand, but keeping the lower Bush rates on top income earners and the reduction in capital gains and dividends taxes to 15 percent. McCain would also slash the corporate tax rate from 35 percent to 25 percent, and phase out the alternative minimum tax, which hits upper-income groups.

That skews the tax cuts heavily toward business income and high-earning groups. Most people would see little change in their taxes, but the top 0.1 percent of income earners would see taxes fall by more than $190,000, the Tax Center analysis showed.

The plan would reduce revenue by $600 billion over 10 years.

That ignores the government's voracious need for taxes to pay for government health care programs and the Iraq war. McCain's plans to cut spending by eliminating earmarks and "corporate welfare" would not come anywhere near to closing the budget gaps left by his tax cuts.

McCain also supports a continuation of the Iraq war, which last year cost $170 billion.
"I think it's just unrealistic to propose the kinds of things McCain is proposing, because I just think the fiscal pressure is just too great, and I think it's delusional to think you can not only keep all of the Bush tax cuts but expand them," said Bruce Bartlett, a former supply-side advocate and official in the Reagan and George H.W. Bush administrations. "Anyway, he's not going to be able to do that because he's going to have a Democratic Congress to deal with."

It's Not Just Taxes, It's the Dollar

From an article on income taxes and the economy:

The proper level of taxation has predictably emerged as a major presidential campaign issue. The irony here is that stock market returns since the 1950s show that the dollar's stability and its direction trump taxes as the greatest indicator of our long-term economic prospects.

Sadly, the dollar's fall this decade has not generated any kind of campaign comment from either side. Oddly enough, both Senators McCain and Clinton support a federal gas-tax holiday for the summer. But it should be said that this gimmick perhaps is the primary campaign's ultimate non-sequitur. To endorse an 18-cent-per-gallon tax cut on gasoline is to miss the point. Pump prices aren't high due to federal taxes, but instead are reaching nosebleed levels thanks to a collapsing dollar.

If it's agreed that stock market returns at the very least indicate long-term economic optimism, the dollar's fall should be issue no. 1 for candidates on both sides. Just as high tax rates erode the value of paychecks and investments, so does inflation. And when stock market returns over the last 60 years are considered, it becomes apparent that all three presidential candidates do not have their eyes on the ball. In short, it's the dollar, stupid.

Today's Republicans want tax cuts, while Democrats want tax increases. Judging by equity returns, both sides ignore the dollar at their peril.

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McCain Proposes Summer Federal Gas Tax Breaks

Republican Presidential nominee John McCain wants a summer break, calling on the government to suspend all federal gasoline taxes from Memorial to Labor Day.

Senator John McCain, (R) Arizona: "The effect will be an immediate economic stimulus, taking a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up."

In a Tax-Day economic speech, McCain says he wants to reform the federal tax code, remove corporate tax loopholes, and cut taxes for businesses and middle income earners, including a "phaseout" of the "alternative minimum tax." McCain also criticized his Democratic rivals, claiming they would raise taxes.

Senator McCain: "All the tax increases are the fine print under the slogan of "hope." They're going to raise taxes by thousands of dollars per year, and they have the audacity to hope you don't mind."

Senator Barack Obama fired back.

Senator Barack Obama, (D) Illinois: "John McCain seems to think that the Bush years have been pretty good. In fact, he's running for a third Bush term. He is offering more of the same."

Obama Calls for Overhaul of Financial Regulations

According to an article on stocks and the economy, democrat Barack Obama said the government must overhaul the rules governing banks and other financial institutions in the wake of a collapse in the subprime mortgage market that has shaken confidence in the U.S. economy.

Saying the nation has lost a "sense of shared prosperity,'' the presidential candidate called for giving the Federal Reserve greater supervisory authority when it acts as a lender of last resort, strengthening the capital requirements for financial companies and streamlining the collection of overlapping regulatory agencies that oversee Wall Street.

"Our free market was never meant to be a free license to take whatever you can get, however you can get it,'' Obama said in an address at New York's Cooper Union for the Advancement of Science and Art. "The American economy does not stand still, and neither should the rules that govern it.''

A deepening slump in the housing market and declines in business investment, consumer spending and construction are prompting sparring among Obama, Hillary Clinton, his rival for the Democratic nomination, and Republican presidential candidate John McCain over how to pull the U.S. back from the brink of a recession and deal with the risks exposed by the credit crisis. All three have delivered speeches on the economy this week.

McCain spokesman Tucker Bounds said in a statement after Obama's speech that the Illinois senator is endorsing the "failed liberal policies of the past.'' In his own economic speech March 25, McCain, an Arizona senator, urged revisions focused "solely on preventing systemic risk'' and not assisting speculators.

Clinton, a New York senator, has called for spending more on job training and for a $30 billion program to help homeowners and communities hit by rising foreclosures to stimulate the economy. Neera Tanden, a Clinton spokeswoman, said Obama was offering "vague principles'' rather than "concrete solutions to provide Americans with greater confidence in the market or keep them in their homes.''

Campaigning today in North Carolina, Clinton added to her economic proposals with a plan for spending $12.5 billion over five years to help displaced workers with training programs and grants for education.

She and Obama criticized McCain, 71, saying he was offering an extension of the economic policies of Republican President George W. Bush.

"I don't think we can afford four more years of that kind of inaction,'' Clinton, 60, said in Raleigh.

To deal with the current slowdown in the economy, Obama urged passage of a second $30 billion stimulus plan, including $10 billion to help homeowners facing foreclosure either sell their homes or modify their loans, aid for state and local governments to prevent service cuts and expanding unemployment insurance to cover more workers. The plan is similar to one Clinton offered on March 20.

Addressing what he said was a flawed regulatory system, Obama blamed both Democratic and Republican administrations for peeling back rules put in place in reaction to the Depression of the 1930s without adapting to changes in the financial marketplace.

"The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both,'' Obama said.

He cited the repeal in 1999 of the Glass-Steagall Act, which separated commercial and investment banking and one of the hallmark laws of the late President Franklin Roosevelt's New Deal economic program. While that allowed banks and securities firms to compete more directly, the absence of a replacement reflecting changes in financial markets led to excesses.

"Instead of sensible reform that rewarded success and freed the creative forces of the market, too often we've excused and even embraced an ethic of greed, corner cutting and inside dealing that has always threatened the long-term stability of our economic system,'' he said.

Obama proposed six areas to revamp regulations.

The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort, Obama said. "Taxpayers have every right to expect that these institutions are not taking excessive risks,'' he said.

Second, requirements for capital, liquidity and disclosure should be strengthened for all financial institutions, especially for "complex financial instruments like some of the mortgage securities that led to our current crisis,'' he said.

Obama said the government needs to restructure the overlapping and competing regulatory agencies because today's financial institutions no longer fit within specific categories created decades ago.

Related to that, regulations need to change to apply to what institutions do, not their title, he said. Homeowners weren't protected in part because commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies.

"It makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don't originate from banks,'' Obama said. "When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with.''

Obama said the Securities and Exchange Commission should crack down on trading activity that crosses the line to market manipulation. He cited reports that traders made market bets against Bear Stearns before its collapse this month, purposely spreading rumors that the institution was in financial distress. "The SEC should investigate and punish this kind of market manipulation,'' Obama said.

Lastly, Obama called for the creation of a financial market oversight commission to identify unanticipated systemic risks to the financial system. The commission, he said, would meet regularly with the president, Congress and regulators and brief them on the state of financial markets and risks.

Obama, 46, is offering a "credible approach,'' former Federal Reserve Chairman Paul Volcker, an Obama supporter who attended the speech, said in an interview. "You can't solve this problem overnight, but you've got to have a thoughtful review of it and accept the logic that regulatory authority has to be extended and strengthened.''

William Donaldson, former chairman of the U.S. Securities and Exchange Commission and an Obama supporter, said the economy needs "some 21st century reorganization'' to prevent future crises in housing and financial markets, "all of which were sort of driven through a hole in regulation.''

The Commerce Department reported today that the U.S. economy grew at an annual pace of 0.6 percent from October though December, another sign that the U.S. economy may be close to or already in a recession. Orders for durable goods unexpectedly fell in January as companies became more hesitant to invest, the Commerce Department said yesterday. Sales of new homes dropped to a 12-year low.

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Traders Accounting provides tax consulting, entity formation, tax preparation and 401(k) services that help you efficiently establish and maintain your trading business. Lower your taxes, save time, and maximize the benefits of your trading business. Visit our site for a FREE trader tax action plan.