Tuesday, September 9, 2008


Now that the conventions are over and the official party platforms have been approved and published let’s tax a look at the two tax planks.

As I have mentioned before here at TWTP, the Democratic Party platform includes a great statement – “We must reform our tax code. It is thousands of pages long, a monstrosity that high-priced lobbyists have rigged with page after page of special interest loopholes and tax shelters.” But that being said it goes on to add pages and pages of complexity to the Code.

The Democrats want to “eliminate all income taxes for seniors making less than $50,000 per year”. How is the $50,000 to be determined? Will it be federal AGI or total income before “adjustments”? Will it include 100% of Social Security or Railroad Retirement benefits? Will it include tax-exempt municipal income? An AGI, or even total income before adjustments, of $50,000 does not mean that a person made $50,000 that year. Why should seniors be singled out? If you want to reduce the tax burden on senior citizens you should revise the formula for determining taxable Social Security and Railroad Retirement benefits. This is clearly a ploy to “buy” votes and makes no sense otherwise.

They want to expand existing refundable credits and create new ones. You know how I feel about refundable credits.

The platform says “we will dramatically simplify tax filings so that millions of Americans can do their taxes in less than 5 minutes”, but does not say how. I think this refers to Obama’s ridiculous proposal “to direct the IRS to send pre-filled tax forms to 40 million workers who take the standard deduction and have a bank account. They would simply have to sign and return it”. My post “A Very Bad Idea” explains why this is indeed a very bad idea on so many levels.

While I have not found it yet in my reading of the Democratic plank, Obama as a candidate has called for increasing the current special tax rate on capital gains and qualified dividends. I firmly believe that a low capital gains tax rate results in increased taxable income, as has historically been the case.

The Republican tax plank also has a strong statement – “The Republican Party will put a stop to both social engineering and corporate handouts by simplifying tax policy, eliminating special deals, and putting those saved dollars back into the taxpayers’ pockets.”

In this regard the Republicans make a good point. They say that “Today’s Democratic Party views the tax code as a tool for social engineering” and this should not be. As I and other tax bloggers have said in the past the Tax Code cannot be used to cure the ills of society. The Republican platform does, and correctly so, state that the Code should be used to encourage economic growth and encourage savings.

Among the positive positions in the Republican tax proposals are –

* “The Alternative Minimum Tax, a stealth levy on the middle class that unduly targets large families, must be repealed.” It had been said that while the Republicans publicly speak out against the dreaded AMT they secretly really don’t care because it is the blue states that are hardest hit by this tax. It is good to see the AMT’s repeal as an official plank.

* "Over the long run, the mammoth IRS tax code must be replaced with a system that is simple, transparent, and fair while maximizing economic growth and job creation.” Where we part company is that the party calls for “giving all taxpayers the option of filing under current rules or under a two-rate flat tax with generous deductions for families”. There is no need for two tax systems. If the “two-rate flat tax” provides the same revenue as the “current rules” with none of the complexity why not just replace the “current rules”.

* “We support a tax code that encourages personal savings. High tax rates discourage thrift by penalizing the return on savings and should be replaced with incentives to save.” Increased savings not only benefits the individual saver but also the economy in general by increasing the pool of funds available for investment in growth.

* “Republicans support tax credits for health care and medical expenses.” While I am against refundable credits, as I posted last week the only exception I would accept is one for health insurance premiums, as has been proposed by McCain.

While in just about everything else, especially foreign policy, I tend to support the Democrats, when it comes to taxes and the economy I must side with the Republicans.


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