Voters weighing Obama, McCain tax plans

Obama targets significant tax breaks to modest- and lower-income taxpayers: About $500 cash back for workers on the first $8,100 in job income, eliminating taxes on seniors with $50,000 or less in income, a mortgage credit for people who don’t currently reap an interest credit by itemizing deductions, an expanded saver’s credit, and expansion of a childcare credit. To raise some offsetting revenue, Obama plans to close off more corporate tax breaks than McCain. His campaign makes no pledge to balance the budget.

Obama stresses equity

“The Obama tax plan is to be preferred not only on grounds of equity, but (because it is more fiscally responsible) it is also likely to lead to better economic performance,” says Lawrence Summers, an Obama adviser and former Treasury secretary.

But definitions of what’s fair and what will boost the economy differ.

Berta Berriz, a Cuban-born American who arrived in the US as a girl in 1958, doesn’t see evidence that lower tax rates in recent years have improved economic growth.

“This whole idea of trickle down ... I haven’t seen it rain,” says Ms. Berriz, who teaches fifth graders in Boston.

And neither McCain nor Obama promise a big tax windfall directly for her or her husband, Ty dePass, who’s currently earning little as a freelance writer.

But for them, fairness means that society’s best off should pay more in taxes.

“My [students] are brilliant children with a lot of potential and the will to make it,” she says. But they are also children of immigrants who often work two or three low-wage jobs.

“I would pay more taxes to have children well fed and children out of poverty,” Berriz says. She says that, even though her own budget is tight. Her heating oil bill has doubled to $500 a month. She intends to vote for Obama.

Chris Humphrey sees a different picture of how the economy works.

Like Berriz, he’s far from rich, but he’s a successful wedding photographer near Tulsa, Okla., and is leaning toward a McCain vote.

For him, the ideal system is what proponents call the FairTax, replacing the income tax with a simpler tax on personal spending.

Short of that, he says the best path is the one that tinkers least with the economy’s job-creating machinery. On that score, Obama worries Mr. Humphrey, because of the plan to raise tax rates on people with high incomes – many of whom run businesses.
“For me personally, taxes are a huge factor, and I don’t think that a majority of Americans get how taxes really move the economy,” he says.

It’s not just what candidates say but what they might actually do that he’s thinking about as he considers future opportunities for himself, his wife, and their two young boys.
Many business owners around the country share Humphrey’s concern.

Impact on small businesses

Most small businesses don’t have net income as high as $250,000. But many successful ones do, and they’re often organized so that the income flows onto the personal tax return of the owner. These businesses are effectively taxed at the personal tax rate, not the corporate tax rate.

While not endorsing one candidate or another, Boston-area accountant Larry Nannis describes the implications for many of his clients.

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