The latest issue of Fortune Magazine has two separate articles, one by John McCain, and the other by Barack Obama. The articles examine the candidates view of the economy, where it’s headed, and what they plan to do (if elected) to get the economy rolling again. Of course the main highlights are taxes, social responsibility, and past/present views related to their individual political parties.
One area that confused me a bit was McCain’s comments to shipyard workers in Jacksonville, Fla. He told Fortune: “I think the fundamentals of the U.S. economy are very strong. We’re still the most innovative, the greatest exporter, the greatest producer.” Really? I think we’re third most innovative behind China and Japan, certainly not the greatest exporter (China?), and definitely not the greatest producer. However, I’d say we are the greatest consumer.
Taxes are another huge issue at hand. Does anyone really understand the candidate’s position? The table below is from taxpolicycenter.org, and seeks to better educate voters on the presidential candidate’s tax proposals:
John McCain:
- Allow first-year deduction of 3 and 5-year equipment, deny interest deductions (expires)
- Reduce maximum corporate tax rate from 35 to 25 percent
- Increase the dependent exemption by 70 percent
- Suspend the federal gas tax (18.4 cents per gallon from this Memorial Day until Labor Day
- Convert R&D credit to 10 percent of wages incurred for R&D, make permanent
- Keep the current rates on dividends and capital gains
- Make permanent all provisions other than the estate tax repeal
- Extend and index 2007 AMT patch, further increase exemption by 5 percent in excess of inflation after 2013 (temporarily)
- Make permanent estate tax with $5 million exemption and 15 percent rate
- Give taxpayers the option of an alternative tax system with two rates and a larger standard deduction and personal exemption
- Eliminate oil and gas loopholes
- Unspecified corporate base broadeners
- Eliminate earmarked projects from the budget, freeze nonmilitary discretionary spending for one year, eliminate programs
- Replace exclusion from income for employer sponsored health insurance with refundable credit of $2,500 for individuals and $5,000 for families
- Require a 3/5 majority vote in Congress to raise taxes
- Ban internet and cell phone taxes
- Higher premiums for Medicare prescription drug coverage for single people earning more than $82,000 and couples earning more than $164,000
Barack Obama:
- Refundable Making Work Pay tax credit of 6.2 percent of earnings up to a maximum of $8,100
Refundable Universal Mortgage Credit of 10 percent or mortgage interest for nonitemizers, capped at $800 ($8,000 of interest)
- Eliminate income tax for senior making less than $50,000 per year
- First-time buyers tax credit for new farmers
- Small Business and Microenterprise Initiative tax credit of 20 percent on up to $50,000 of investment in small owner-operated businesses
- Make R&D and renewable enery production tax credit (wind, solar) permanent
- Extend childless EITC phase-in range and increase phaseout threshold, double the phase-in and phase-out rates for childless individuals paying child support, increase EITC phase-in rate to 45 percent for families with three or more children; increase add-on to EITC phase-out threshold for married filers to $5,000
- Make CDCTC refundable and allow low-income families to receive up to a 50 percent credit for child care expenses
- Make CDCTC refundable and allow low-income families to receive up to a 50 percent credit for child care expenses
- Make saver's credit refundable and change to a 50 percent match of the first $1,000 of savings, phases out beginning before $75,000
- Increase Hope credit 100% match rate to $4,000 for college education and make refundable, rename American Opportunity Tax Credit
- Mandate automatic 401(k)s and automatic IRAs
- Increase maximum capital gains rate to 25 percent
- Require information reporting of basis for gains
- Eliminate capital gains taxation of start-up businesses and provide capital gains tax break for landowners selling to beginning family farmers
- Permanently extend marriage penalty relief, adoption credit expansions, 10,15,25, and 28% rates, EITC simplification
- Restore 36 and 39.6% statutory income tax rates, Restore PEP and Pease phaseouts for households making more than $250,000, increase in PEP and Pease threshold
- Extend and index 2007 AMT patch
- Make permanent estate tax with $3.5 million exemption and 45 percent rate
- Give taxpayers the option of pre -filled tax forms to verify, sign, return to IRS
- Eliminate oil and gas loopholes
- Close loopholes in the corporate tax deductibility of CEO pay
- Tax carried interest as ordinary, Increase the highest bracket for capital gains and dividends
- Reallocate multinational tax deductions
- Codify economic substance doctrine
- Create international tax haven watch list
- Other unspecified revenue raising provisions
- Income-related federal tax subsidies for health insurance
- Social Security/payroll taxes: increase the maximum amount of earnings covered by Social Security
Wednesday, July 9, 2008
The Candidates on Taxes
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4 comments:
Brian,
When you are discussing the United States economy, you have to talk about it in relative rather than absolute terms.
United States. We are still one of the most innovative countries in the world. US is a leader in biotechnology, nanotechnology, and information technology; though it shares that title with other nations, which is a good thing.
Education. There is, however, one thing that threatens US. People educated in sciences and mathematics who are either leaving or are not coming here. More visas must be granted to individuals who want to come to the US research institutions to add value to our overall economy.
Japan. While it certainly issues a lot of patents, their patent laws are different from that of the United States, and often ends up spilling out more patents than are really deserved.
China. The dragon from the east is not exactly innovative. Rather, it imports innovations of others. It is an integrator, and will continue to be an integrator for years to come. It is a nation still relatively abundant in labor rather than capital. Therefore, while capital spending will continue to increase, it will still focus on assembly. I will concede one point, they are trying to shake out dirty industries and move into markets for more advanced, high value-added products. How and when they will get there remains to be seen.
Exports. United States is still an extremely important exporter. However, you and I are not interested in industrial and manufacturing exports. We are interested in exports and imports of services and high value-added items.
Savings? I do agree with you about US spending habits. Americans are saving next to nothing; I know that I do not have to tell YOU that. However, our deficit with China is difficult to avoid. American love a bargain and no one, at the moment, provides a bargain like China.
I'll stop here.
Interesting thoughts Alex. I agree with most of your points.
Why aren't more of our young people studying science and engineering? Granted, I didn't, but have never wanted to. We are falling behind other countries and it's happening right before our eyes.
I agree that China is labor rich. However, foreign investment will continue to increase as their economic structures continue to develop.
This discussion was supposed to have a flair towards "investment potential." China has more investment potential than the United States.
Comparing China and US is not exactly fair, as far as return on investment is concerned. China is a ravenous giant that is growing and is in its stage of industrialization. I assure you that US was quite a sight during its industrial revolution. Return to capital expenditure is higher in China and so capital floods there. It is labor rich but capital poor. US is capital rich, so we invest it in China where the return is higher.
As for your question about our young people studying math and science. I think it is, as all situations, a complicated one. However, I believe that culture plays an important part in who decides to do what. I love to compare US to the former Soviet Union, because the approach to education is at the opposite ends of the spectrum.
The Soviet bloc stressed hard skills, technical ability, and analytical skill. The US stresses creativity and innovative spirit. This leads most Americans to choose careers in business or the liberal arts. This is certainly much easier than attending laboratories, carrying out complex analyses, and studying differential calculus. Another reason is the role of abstraction and Americans’ dislike of it. All sciences are abstract and do not have definite form until applied to a given principle or example. However, getting to that example requires a lot of studying, which is not very appealing to majority of American youth. This, by the way, is true of most immigrant children who grew up in US, as well.
Another important factor is the low quality of mathematics and science education in primary education. US lags most post-industrial countries in these two categories. It is difficult to make a transition, or to even be accepted, to an academic program that revolves around science and mathematics. Immigrants who come here – ages 13 and up – usually have a much more concrete understanding of these fields as a result of more rigorous education in their former home nation.
To quickly return to the issue of investment in the US. One of the most important investments that US should be making is in infrastructure. If we do not invest more in our roads, bridges, buildings, various grids and supply lines, etc., within 50 years we will live in what could be considered a third world nation as far as infrastructure is concerned. Otherwise, we have plenty of great things to invest in. US is still one of the most productive nations in the world. Regardless of what is happening at the moment, I have plenty of faith in American ingenuity and dare do to take us into a bright and prosperous future.
Thanks for the well thought out comments. I completely agree with your ideas towards education. Hopefully our school systems will pick up where we are lagging behind.
One development I can see happening is the ever-expanding gap between rich and poor (meaning the slow erosion of the middle class). The "Have's" will send their children to private schools from a young age. The "Have-Not's" will continue in the public school system, where the potential for learning science and engineering will be limited.
The infrastructure argument is a good one as well. I have read various articles on the subject and think it should be examined more carefully by our government.
Hope the GMAT goes well. Let me know.
-Brian
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