2008 Candidates: Taxes and Investing

I came across a pretty good summary from the Tax Policy Center of the presidential candidates' positions on taxes. The general summary, as would be expected, is that Republicans want to either maintain the current tax structure or cut taxes, while the Democrats want to raise taxes. This refelects that the Democrats want to increase spending and need a way to pay for it, although it is not clear that the tax increases they suggest will fully pay for the programs. Not all candidates have provided equal detail about their plans, which is probably a smart thing to do when you need to raise taxes. The Tax Policy Center provides a nifty excel spreadsheet of the candidates proposals. I summarize below and supplemented it with some additional information:

Hillary Clinton

• Repeal tax cuts for the upper two brackets
• No AMT plan
• No capital gains plan
• Keep Estate Tax at 2009 levels, $3.5M, and extend beyond 2011
• Match savings plan contributions up to $1000 ($500 for income over $60,000)

John Edwards

• Repeal tax cut to upper bracket (back to 39.6%)
• No AMT plan
• Raise the capital gains top rate to 28% (from 15%)
• Estate Tax Exemption set to $4M

Barack Obama

• Repeal tax cuts for the upper two brackets, no income tax for seniors making under $50,000
• No AMT plan
• Repeal tax cuts on capital gains and dividend (bring back 20% and 10% brackets)
• Estate Tax Exemption set to $7M
• Provides a number of new tax credits

Rudy Guiliani

• Keep current income tax brackets and create an alternative F.A.S.T system
• Index ATM to inflation
• Lower capital gains and dividends tax to maximum of 10%
• Eliminate all Estate Tax
• Make a Bush tax cuts permanent, expand tax free savings accounts

Mike Huckabee

• Eliminate all income tax and replace with a FairTax
• National sales tax of 23%

John McCain

• Keep the current income tax rates
• Eliminate the AMT
• Keep the current capital gains and dividend rate
• No details on Estate Tax for 2011 (when current law resets Estate Tax exemption to $1M)
• No tax on Internet and cell phones

Ron Paul

• No income tax
• Reduce capital gains and dividends
• Fund government wholly on excise taxes and reduce government

Mitt Romney

• Keep current income tax brackets
• No AMT plan
• Eliminate capital gains, dividends, and interest taxes for AGI below $200,000
• Eliminate Estate Tax
• Keep Bush tax cuts
  

So is this a case of the Republicans saying what people want to hear? Not really, it is just two different classic philosophies at work. The Dems want to provide more services such as universal health care and pay credits to the poor. While the Republicans look to stimulate growth through lower taxes and tax credits for health care. Research has shown that tax cuts don't necessarily drop tax revenues if the economy responds.

Personally, I wouldn't mind a slight increase in taxes if it was accompanied by sizable spending cuts. The Government has been stealing from the Social Security fund to pay for current and increased spending, using triple taxation (income, gains, and estate), and refusing to make obvious permanent fixes to AMT - like indexing to inflation. The AMT was intended to apply to the 155 wealthiest families that had been avoiding taxes. Now every year it threatens the middle class until temporary patches are applied. However, it is more likely that spending will increase, as it has the last 8 years regardless of the tax revenue, and outpace the tax revenue. Therefore, maybe a drastic change as advocated by Ron Paul or Mike Huckabee is necessary to change the behaviors of Congress. There is only one problem, Congress will never let it happen. They won't vote to change their own ways.

The only realistic changes are small baby steps and I have to say the most favorable realistic plan for the personal investor looks to be Mitt Romney's.