McCain and Obama tax plans could be problematic

The competing tax plans laid out by Sens. Barack Obama and John McCain would both add trillions of dollars to the national debt and could add to the tax system’s complexity, a nonpartisan tax research group concluded Wednesday in a newly released report.

Both campaigns have asserted that their plans to continue many Bush-era tax cuts and offer new reductions would aid the economy without requiring massive new spending. But the Washington-based Tax Policy Center warned that under either candidate, “the debt would likely continue to rise as it has over the past eight years.”

Obama’s plan – a combination of cuts targeted to middle- and low-income Americans and increases for the wealthy – would increase the national debt by an estimated $3.4 trillion over the next decade, the center reported. Under a similar analysis, McCain’s tax proposals – largely a continuation of the Bush tax reductions – would add $5 trillion. The national deficit now stands at $9.5 trillion.

Both candidates would maintain the Bush tax cuts for the working poor and middle-income taxpayers. But they differ drastically on how to target the richest Americans.

The report estimated that under McCain’s plan, middle-income Americans who make between $38,000 and $66,000 a year would see average tax cuts of as much as $1,400 in 2012. But McCain, an Arizona Republican, would aid the wealthiest 1% – those who make more than $603,000 per year – with annual tax reductions averaging $127,000.

Under Obama’s plan, the tax center reported, middle-income taxpayers would have tax cuts averaging $2,100 in 2012. But the affluent top 1% of taxpayers would see steep increases – $38,000 a year, on average – under the Illinois Democrat’s plan.

Leonard E. Burman, a Tax Policy Center senior fellow who was on the team of analysts that reviewed both candidates’ plans, said in an interview that important portions of both Obama’s and McCain’s plans had yet to be fleshed out.

Both proposals are filled with “soft numbers” and sometimes play “fast and loose with their figures,” Burman added.

“We had to make a lot of assumptions because there are big parts of their proposals that are still being fine-tuned,” he said.

Burman also said that although both candidates’ plans attempt to streamline the tax system, they create potential new complexities for taxpayers.

Both Obama and McCain would continue the alternative minimum tax, or AMT, long criticized for adding to the tax bite and complexity for middle-class and many upper-middle-class taxpayers.

McCain would allow taxpayers to circumvent the AMT with an “optional alternative tax system” that could cause new chaos.

“If the new alternative tax system does not offer significant tax cuts, having to figure taxes under two systems and estimate which one would be better would add complexity, not reduce it,” the center cautions.

And although Obama seeks to aid low-income taxpayers with a proposal in which the government would prepare their tax returns and the taxpayers would approve them, he has only committed vaguely to “fiscally responsible” reform of the AMT, the center notes.

Another concern, Burman noted, is that Obama and McCain have presented “somewhat differing” versions of their plans on the campaign trail than what they have issued on the Web and in position papers.

“Sen. McCain’s proposals on the stump are often far more sweeping than the more measured options outlined by his campaign,” the center reported. At the same time, “Sen. Obama also often proposes new taxes on high-income households to extend Social Security solvency, but his staff insists that no specific policy exists.”

 stephen.braun@latimes.com