Candidates Tax Plans in Detail

With the election nearing and more details on the candidates tax plans are now known we can look at them side by side.

Income Taxes
McCain's plan essentially keeps the current tax rates in tact. The only real change he has proposed is to is to raise the individual exemption amount from $3,500 to $6,000.

Obama's plan is to repeal the changes in the tax rates that were passed during the Bush administration. In that vein the 33% rate would jump to 35% and the 35% bracket would go to 39.6%.

Obama is not proposing any income tax cuts per se, rather his intention is to use a system of "refundable" credits to reduce taxes. A refundable credit is a tax credit that you receive regardless of if you pay any income taxes. The centerpiece of his refundable credit plan would be a $500 credit for Social Security taxes paid. There would also be a provision to convert the Child Care Credit to a refundable credit and make 50% of those costs eligible for the credit rather than the current 20%.

There is also talk of increasing the Social Security Tax on those making over $250,000. Currently, once an individual earns over $102,000 they are no longer subject to the FICA tax. This limitation has been increased on an inflation basis in past years. Specifics of this idea have not been released. The most concrete idea has been Charles Rangle's idea of a 4% tax surcharge on those making over $250,000.

Both candidates propose fixing the Alternative Minimum Tax by indexing the standard deduction to inflation.

Capital Taxes

McCain is proposing keeping the rate at its current 15%. He has also proposed temporarily allowing all companies to expense their capital purchases rather than depreciate them. Think of this as Section 179 expanded to all businesses.

Obama has proposed raising the Capital Gains Tax to 20%. There has been no talk of making any changes to Section 179.

Estate Taxes

McCain proposed to raise the current exclusion to $5,000,000 and then tax the excess at a flat 15% tax rate.

Obama has proposed raising the exclusion to $3,500,000 and then tax the excess of 45%.

Current law on estate taxes is a bit confusing as it completely goes away in 2010 and then returns in 2011 with a $1,000,000 exclusion and a 55% tax rate if nothing is done.

Corporate Taxes

McCain has proposed lowering the top rate from 35% to 25%.

Obama would make no changes to the rates, but has proposed taxing a company's worldwide income. Currently, companies only pay income taxes on their United States earnings. He has also proposed a "windfall" profits tax on the oil companies.