Obama Tax Plan Stresses Inequality, Clinton Focuses on Behavior

March 13 (Bloomberg) -- Hillary Clinton and Barack Obama both propose significant changes to the tax code that would add to its complexity. His plan emphasizes income inequality, while hers seeks to change Americans' behavior.

Obama's proposal would shift the tax burden toward the rich from low- and middle-income workers. Clinton proposes targeted tax breaks designed to change the way Americans use energy, save money and care for elders.

Obama, 46, ``seems to have focused on redistribution,'' said Michael Graetz, a professor at Yale Law School in New Haven, Connecticut, and a former Treasury official.

Clinton, 60, ``is proposing tax credits for everything short of flossing your teeth,'' said Lee Sheppard, a tax lawyer and columnist at Tax Analysts in Falls Church, Virginia.

The two candidates' plans -- especially Clinton's -- would further complicate a tax system that experts say is already Byzantine. Obama would tweak and augment current laws, while Clinton would introduce even more rules by adding at least nine new credits with complex qualification requirements, phase-outs and sliding scales.

`Complicate the Process'

``The inevitable consequence,'' said Joel Slemrod, an economist at the University of Michigan in Ann Arbor, ``is to complicate the process.''

Both candidates would allow President George W. Bush's tax cuts to expire for workers in the top two tax brackets and set the estate-tax rate at 45 percent with a $7 million exemption. Obama wants tax rates on capital gains and dividends to rise from the current 15 percent rate to perhaps as high as 28 percent, the rate under former President Ronald Reagan.

Clinton spokesman Brian Deese said the New York senator would also raise the rate on investment income, though she hasn't provided details.

The centerpiece of Obama's tax plan is a $1,000 tax cut for workers that would cost more than $80 billion annually and effectively eliminate all taxes for about 10 million low-income Americans.

`Signature Difference'

That tax cut is ``the signature difference,'' said Jared Bernstein, an economist at the Economic Policy Institute, a Washington research center funded partly by labor groups. ``That costs some serious money.''

The Illinois senator would also offset the cost of his cuts by eliminating ``corporate loopholes,'' including one that allows executives of hedge funds and private-equity firms to pay a 15 percent capital-gains rate on most of their income rather than the 35 percent regular income-tax rate, and by cracking down on overseas tax havens.

Obama also offers a 10 percent mortgage credit that can be claimed by people who don't itemize deductions and eliminates taxes for senior citizens who earn less than $50,000.

His approach is aimed in part at giving a boost to workers whose incomes have been stagnant in recent years by allowing his $1,000 credit to offset payroll taxes as well as income taxes, which means it will reach lower on the income scale.

``That's a problem that faces a pretty wide swath of the population,'' said Austan Goolsbee, the candidate's chief economic adviser and an economics professor at the University of Chicago. ``Targeted credits do not properly deal with that problem.''

Clinton's Credits

Clinton, by contrast, proposes credits and deductions targeting specific groups or activities. She offers a $3,000 ``caregivers credit'' to offset the cost of caring for an elderly or disabled relative, a refundable credit ``to make health care affordable,'' and a $1,000 credit for people who save in a retirement account.

``For tens of millions of families, Senator Clinton's plan would provide more tax relief,'' Deese said.

Clinton also proposes credits for those who make homes and offices more energy efficient and for small businesses that provide health insurance to employees.

``These provisions certainly seek to use the tax system as a principal vehicle to deliver social policy,'' Slemrod said.

Obama's plan includes targeted tax provisions, too, including a $4,000 college credit and an extension of the renewable energy credit, though not as many as Clinton's.

Income Groups

The candidates' plans differ as to which income groups they help most, says Margaret Simms, director of the Low-Income Working Families Project at the Urban Institute, a nonpartisan economic and social-policy research center in Washington.

Clinton's plan ``seems to be more pitched toward middle- class families,'' Simms said. ``Obama's appears to be slightly more tilted to lower-income families.''

Neither plan will be approved by Congress in current form, even if Democrats increase majorities in both houses, Bernstein said.

There will be an opportunity to overhaul the tax code when many of Bush's 2001 and 2003 tax cuts expire in 2010. The next president will face pressure to renew some of the breaks to avoid a sudden across-the-board tax increase that could disrupt the economy.

Officials including Treasury Secretary Henry Paulson and Representative Charles Rangel, the New York Democrat who heads the House Ways and Means Committee, have put forth proposals to redesign the system.

Clinton and Obama, however, haven't focused on streamlining the federal tax code, which runs to more than 66,000 pages when regulations and rulings are counted, said Chris Edwards, director of Tax Policy Studies at the libertarian Cato Institute in Washington.

The Democrats' proposals ``would add thousands more pages,'' Edwards said.
Obama Tax Plan Stresses Inequality, Clinton Focuses on Behavior - Yahoo! News

There are NO winners here folks!!

Have a good one!:s4:

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Originally Posted by Psycho4Bud

Obama wants tax rates on capital gains and dividends to rise from the current 15 percent rate to perhaps as high as 28 percent, the rate under former President Ronald Reagan.

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Unequal huh?

When is the last time you saw any poor people receiving capital gains or dividends?

When is the last time you saw anyone who is receiving capital gains or dividends hurting for money?

And there is the answer. :rastasmoke:

Quote:

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Originally Posted by melodious fellow

Unequal huh?

When is the last time you saw any poor people receiving capital gains or dividends?

When is the last time you saw anyone who is receiving capital gains or dividends hurting for money?

And there is the answer. :rastasmoke:

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Why is the family farm a thing of the past? Nice to inherit a place that has been bought and paid for in cash and blood to see that you now owe 28% on it. What about that family that worked and put away money in company stocks? So much for that lil' extra in the retirement fund. Capital gains tax hits EVERYONE, some more than others.

The rich will find a loop-hole to hide the transfer of property, to bad that the middle class don't have that luxury.

Have a good one!:s4:

Quote:

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Originally Posted by melodious fellow

Unequal huh?

When is the last time you saw any poor people receiving capital gains or dividends?

When is the last time you saw anyone who is receiving capital gains or dividends hurting for money?

And there is the answer. :rastasmoke:

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I know of a lot of people who are poor and have investments. its stuff like 401k's

You have to have fairly large investments to recieve dividends..

I have investments and do not recieve dividends because I havn't invested more than a few grand. Many lower class and working class families like my own do not have huge resources for investing, and thus do not recieve dividends.

Obama's goal is to aid lower class and working class families.

Eventually lessen the huge gap, as a miniscule percentage of the country controls over 90% of the wealth.

Bush's tax cuts were for the rich. That is incorrect logic.

Quote:

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Originally Posted by Psycho4Bud

Why is the family farm a thing of the past? Nice to inherit a place that has been bought and paid for in cash and blood to see that you now owe 28% on it. What about that family that worked and put away money in company stocks? So much for that lil' extra in the retirement fund. Capital gains tax hits EVERYONE, some more than others.

The rich will find a loop-hole to hide the transfer of property, to bad that the middle class don't have that luxury.

Have a good one!:s4:

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Didn't the article say that the inheritance tax would exempt $7 million? Are family farms and small businesses very often worth much more than that?

I don't think the capital gains tax should be any different than the regular income tax. Why should income from working at a job be taxed higher than income from buying and selling stocks and property at a profit? Why should income from interest on money at the bank or credit union be taxed higher than stock dividends? Seems like that is kind of screwing people who have to work for their money and only have enough in savings for a bank account, not stocks. I don't think a person should get a break just because they are well off enough to make money owning stocks or property instead of working at a job and collecting a wage. It's all income, so it should be taxed at the same rate. If the rates were the same for different kinds of income, all the rates could be lower, and benefit everyone evenly. Republicans are all about simplifying the tax code until it comes to breaks for rich folks, then it's just fine to have special tiers for different types of income.

Quote:

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Originally Posted by FlyGuyOU

I know of a lot of people who are poor and have investments. its stuff like 401k's

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Things like 401ks and IRAs are taxed at the higher income tax rates, like wage income, not the lower capital gains rates. So yeah, a poor person might have stocks in a 401k, and when he starts taking money out he'll pay taxes on it at his regular income tax rate (probably around 25%, but maybe as high as 30% or 33%), while a rich person who has the exact same stocks in a non-retirement stock portfolio will only pay 15% max. It they are didvidend-earning stocks, the 401k guy pays the income tax rate, while the portfolie guy pays zero on the dividends. The 401ks and IRAs have tax advantages on the front end, so they are a good deal, and the reason thay are taxed as regular income is that they can include many different kinds of investments, not all of which earn money by making capital gains or earning stock dividends. But don't get the impression that the low capital gains tax and the zero tax on stock dividends benefits the little guy investor who has stocks in a 401k or IRA --- it only benefits people who have non-retirement stock portfolios.

Personally, I don't favor a lot of the tax policies of either the Democrats or Republicans. Taxes shoudl be as simple as possible, but I don't favor a flat tax or the so-called "fair tax" national sales tax. I think there needs to be brackets so that poor folks can afford to pay some tax without being wiped out, but the max bracket should never be higher than a third of what you make. I don't think it should matter how you make your income, by working for a wage, earning interest on your bank account, buying and selling stocks, earning dividends, selling popsicles, or renting umbrellas --- it's all income and none of them should have an advantage over another. I don't go in for all the huge variety of deductions or tax credits either. You should be able to deduct your state taxes, so you aren't paying taxes on your taxes, and deduct charitable donations, because those organizations do some of the work we might otherwise expect government to do. Other than that, I don't really like all the deductions and credits.

Maybe if we made all income taxable the same way, and got rid of most of the deductions and credits, then we could all have more reasonable rates, and we could put a couple million tax accountants and lawyers to work doing something productive instead of trying to game the tax code.

Capital Gains Tax is currently broken down into 2 levels; short term which is less than a year and long term investments. The short term is currently at 28%, if I recall correctly, and the long term that would affect 401K programs, long term stock investments in companies is at 15%. The middle class and lower class are the ones with the 410K and other employee options like stocks. THEN if these people decide to sell their homes at retirement that is also Capital Gains.

My parents home has increased in value by 4 times the amount they bought it for back in "68". Middle class factory workers that would get screwed by this plan.

Have a good one!:s4:

actually you can get dividends and only own one share of stock. it depends on what type you buy, back when i turned 10 my parents gave me a $100bill which i then invested (my dad was a stock broker at the time) And once or twice a year I would get a check in the mail for my dividend. it was only $.50- 1.00
then my share in disney went 3:1 and i sold em.

Quote:

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Originally Posted by Psycho4Bud

Capital Gains Tax is currently broken down into 2 levels; short term which is less than a year and long term investments. The short term is currently at 28%, if I recall correctly, and the long term that would affect 401K programs, long term stock investments in companies is at 15%. The middle class and lower class are the ones with the 410K and other employee options like stocks. THEN if these people decide to sell their homes at retirement that is also Capital Gains.

My parents home has increased in value by 4 times the amount they bought it for back in "68". Middle class factory workers that would get screwed by this plan.

Have a good one!:s4:

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Capital gains taxes DO NOT apply to your 401k or IRA investments. Those are already taxed as regular income when you get distributions from the plan. The low rates on capital gains only apply to capital gains on non-retirement plan investments. So the middle class factory worker you mentioned who has a 401k already pays 25% or more, while the Wall Street guy who makes a million a year (or $10 million or $100 million) trading stocks pays only 15% as long as the investment is held over 1 year. Changing the capital gains rate will not affect people with 401ks or IRAs.

The capital gains tax on the appreciation in the value of a home has a $250,000 exemption per person. So $500,000 per couple. So if your parents bought their house for $100,000 and now it is worth $600,000 and they sell it, they owe nothing. They made half a million dollars tax free. If they bought it for $100,000 and now it is worth $1,100,000, they still make a half million tax free, but they pay taxes on the other half million they made.

If we made the capital gains tax the same as the regular income tax, it would not affect people who have their investments
in retirement plans or people who made a good amount of appreciation on their own homes. Unless those middle class factory workers you mentioned have stock portfolios outside of their retirement plans, or have investment properties, or make more than half a million dollars on the appreciation of thier homes, they aren't going to be affected by making the capital gains tax fair. They might even benefit if the extra tax revenue means the overall rates could be decreased or the deficit brought under control.

Quote:

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Originally Posted by melodious fellow

You have to have fairly large investments to recieve dividends..

I have investments and do not recieve dividends because I havn't invested more than a few grand. Many lower class and working class families like my own do not have huge resources for investing, and thus do not recieve dividends.

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Stock dividends do not have to do with how much you invest --- it is only related to the stock you purchase and wheter the stock is set up to pay dividends. If you buy one share of a stock that pays dividends, then you are paid dividends the same way as a person who owns a million shares of the same stock. (He gets a million times as much because he owns a million times as many shares, but you both get them at the same rate per share). If you buy a million shares of a stock that doesn't pay dividends, then you don't get any dividends.

You're right about how working class people don't invest in general, so they don't get dividends. But if they did invest, they would get dividends the same as a rich investor would, assuming they invested in the same stock.

I'm definitely not voting Obama. To raise the capital gain's tax to 28% of ridiculous. It won't hurt the rich, it'll hurt the working/middle class investor. This move would stifle the economy even further and prevent further investment.

melodious fellow, they have to pay you dividends regardless of how much you invest. Are you sure you did not opt that they automatically reinvested your dividends? Better check.