Candidates’ tax plans raise U.S. debt

Sen. Barack Obama’s tax plan would make the U.S. tax system more progressive, while Sen. John McCain’s tax policies would make the system more regressive - but both of them would raise the national debt by trillions of dollars, according to a study of their tax agendas by the Tax Policy Center.

Under the spending assumptions of the Congressional Budget Office, the Obama plan would raise the national debt by $3.3 trillion over the next 10 years, while the McCain plan would increase it by $4.5 trillion.

“The fully phased-in estimates for McCain’s plan are 50 percent more costly than Obama’s,” said James Horney of the Center on Budget and Policy Priorities, a liberal D.C. think tank. However, people earning less than $117,500 “would get bigger tax cuts from the Obama plan,” he said.

By raising taxes on the wealthy and introducing a broad range of refundable tax credits, the Obama plan would make the tax system “significantly more progressive,” the Tax Policy Center study concluded. Mr. Obama also would extend several 2001 tax cuts, including the 10 percent tax bracket, relief from the so-called “marriage penalty” and the expanded child tax credit.

“If you are in the middle class, you will get three times more tax relief from Obama’s plan,” Jason Furman, economic policy director of the Obama campaign, told The Washington Times. “Nearly one quarter of Senator McCain’s tax cuts go to families making more than $2.8 million.”

Economists for Mr. McCain, the Arizona senator who is the presumptive Republican presidential nominee, did not return phone calls Thursday.

Compared with current tax rates, taxpayers in the top 1 percent and top 0.1 percent income brackets would see their annual tax bills rise by $133,000 and $789,000, respectively, under the Obama plan. Taxpayers with incomes roughly between $20,000 and $70,000 would receive tax cuts of nearly $1,000.

Under the McCain plan, even if the 2001 and 2003 tax cuts were permanently extended, taxpayers in the top 1 percent and top 0.1 percent income brackets would receive additional annual tax cuts of $32,000 and $191,000, respectively. The plan would give taxpayers earning between $20,000 and $70,000 an average tax cut of $200.

“What happens to economic growth depends a lot on what happens to the deficit and the debt,” said Roberton Williams, a co-author of the study by the Tax Policy Center, a Washington-based think tank that includes scholars from the Brookings Institution and the Urban Institute.

The analysis concluded that the plan by Mr. Obama, the Illinois senator who is the presumptive Democratic presidential nominee, would substantially increase the deficit compared with current law, which assumes the 2001 and 2003 tax cuts will expire at the end of 2010. Mr. McCain’s proposed 10-percentage-point cut in the corporate income-tax rate and his permanent extension of the Bush tax-rate cuts would likely lead to increased investment. But those short-term benefits could be canceled later, Mr. Williams said.

“You have to pay for debt at some time,” Mr. Williams explained. “You can cut spending or raise taxes. Raising taxes later depresses the growth of the economy more than you gained from cutting taxes,” rendering the policy “economically harmful” over the long run.