June 11, 2008 / 9:52 PM / 11 years ago

McCain, Obama tax plans to boost U.S. debt: tax group

WASHINGTON (Reuters) - Tax breaks proposed by both presidential hopefuls John McCain and Barack Obama would increase the U.S. national debt by trillions of dollars over 10 years, but Obama’s plan would hike taxes for the wealthiest Americans, a tax policy group said on Wednesday.

In an analysis of how the candidates’ tax proposals would affect federal revenues, the Brookings Institution and the Urban Institute said McCain’s plans would cut receipts by $3.72 trillion from 2009-2018 compared with current tax law. Obama’s plans would cut revenues by $2.73 trillion over the same period.

Including added interest costs, McCain’s plan would add $4.5 trillion to the national debt, while Obama’s would add $3.3 trillion — and that’s before spending proposals are considered.

“It seems really unlikely that they’re going to be balancing the budget,” said Leonard Burman, director of The Tax Policy Center run by Brookings and the Urban Institute in Washington, D.C.

The group sought to quantify revenue costs for the tax break proposals articulated on the campaign trail but assumed flat spending for each candidate based on this year’s budget.

McCain has proposed extending the Bush administration’s 2001 and 2003 income and capital gains tax cuts, which are due to expire at the end of 2010. He also wants to cut the corporate income tax rate to 25 percent, reduce estate taxes, increase the exemption for dependents by $500 and allow businesses to expense purchases of shorter-term equipment.

Obama, meanwhile, would retain portions of the 2001 and 2003 tax cuts that benefit low- and middle-income Americans, while allowing rates to ratchet back up for the wealthiest taxpayers. He is also proposing new tax credits for lower income workers and a home mortgage tax credit for taxpayers who do not itemize deductions.

Obama also proposes to expand the child and dependent care tax credit and exempt seniors earning less than $50,000 from paying federal income taxes.

The analysis assumes both candidates want to permanently index the alternative minimum tax for inflation to keep it from ensnaring more middle income taxpayers, at a cost of about $1.1 trillion over 10 years.

The analysis was done before Obama said he wanted to phase out the alternative minimum tax.

The Tax Policy Center said McCain’s plan would provide effective tax cuts for Americans across the income spectrum, with the largest percentage increase in after-tax income going to the wealthiest 0.1 percent of Americans.

This group, numbering around 150,000, would see their after-tax income rise by an average of 11.6 percent, or $678,500, in 2012 as compared with current law that sees tax cuts expiring at the end of 2010.

The lowest income 20 percent of taxpayers would see an increase in after-tax income of 0.9 percent, or $101.

Obama’s plan takes somewhat the opposite tack, providing greater percentage tax benefits for lower income groups while the wealthiest would see tax hikes.

The analysis showed that the lowest-income 20 percent of taxpayers would see after-tax income increase by 6.2 percent, or $698 increase, compared with current law, while the top 0.1 percent would see their after-tax incomes decline by 5.1 percent, or $301,400.

Burman said the analysis deliberately left out spending proposals to focus on the tax side of the equation. He added that Obama’s plans for universal health insurance could add significantly to the national debt, while failure to achieve spending cuts and continued Iraq war spending at high levels under McCain could also raise deficits.

The Tax Policy Center said it would continue to revise its analysis as more plans are formulated by the candidates.

“It’s important not to underestimate the level of chaos in the campaigns. They’re making this up on the fly,” said William Gale, Tax Policy co-director and vice president at the Brookings Institution.

Editing by Leslie Adler

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