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

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Psycho4Bud Reviewed by Psycho4Bud on . 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 Rating: 5