Jobs, Taxes & Benefits

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Promises Decoded: What the Candidates’ Tax Plans Mean for You

The April 15 deadline has passed, but that doesn’t mean you should stop thinking about your taxes. This year, it’s worth considering them until November 2nd, Election Day.

Both Bush and Kerry will be talking a lot about taxes in the coming months, so here’s some info that will help you to decode their speeches and choose a candidate:

The similarities

Surprise! Unless you earn over $200,000 a year, have major investment income, or plan on inheriting an estate, the outcome of the election is not likely to affect how much you pay in taxes by next April 15th.

Both Bush and Kerry want to extend the Bush tax cuts that aid middle and lower-income Americans, such as the increased child tax credit and the repeal of the marriage penalty. And neither candidate has proposed to eliminate the dreaded alternative minimum tax (AMT), though both have offered to study it.

The AMT is a concern because it has not been adjusted for inflation since it was added to the tax code in 1968. Originally intended to target the wealthy that were slipping through loopholes, the AMT now affects 2.6 million people. Especially vulnerable are those who make more than $75,000 or have large deductions like interest from a second mortgage or several kids. Since so many people are now paying the AMT, removing it would be extremely expensive in terms of tax revenues, so both Bush and Kerry are avoiding getting rid of it altogether.

However, these similarities do not imply that Bush’s and Kerry’s tax plans are the same or will affect you in the same way. Hey, when you get down to it, they’re not even similar. When one considers corporate taxes and taxes for big earners, it’s like apples and oranges. And in the long run, the amount that corporations and wealthy Americans pay (or don’t pay) in taxes greatly affects middle and low-income taxpayers.

The differences

Bush

If Bush continues as president, income tax will be reduced to something that could be called "salary tax," because income earned through work will be the majority of income taxed.

Bush plans to lower taxes on income made from investments. So, those who make money off of interest, dividends, and capital gains would benefit from his plan.

Bush would also eliminate the estate tax, which means any income gained through inheritance would be tax-free. Put these two together, and anyone who inherits money and then invests it will be very tax-happy under Bush’s plan.

The Bush administration believes that reducing taxes on capital will encourage investment and that greater investment will benefit workers. This theory is based on the assumption that the money companies save on taxes will ultimately go to higher salaries and better benefits for employees.

Kerry

John Kerry would rollback tax cuts on those who make $200,000 or more. He would also maintain an estate tax, but it would only affect those who inherit several million dollars or more.

Kerry’s plan for corporate America provides the most striking contrast to Bush’s strategy. Kerry plans to stop tax incentives that encourage outsourcing - the exportation of American jobs overseas. Current tax law permits companies to defer paying U.S. taxes on income earned by their foreign subsidiaries; Kerry reads this as a tax break for companies that move investment and jobs overseas.

Kerry proposes to eliminate the deferment and make companies that outsource pay taxes on income as they earn it. But this new rule would not apply to foreign subsidiaries that serve foreign markets. In other words, if a U.S. car company opened a plant in China to sell cars in China, they will still be allowed to defer their income taxes. But if a U.S. car company opened a plant in China to sell cars back to the U.S. or to Canada, they would still have to pay taxes just like auto manufacturers based in the United States.

Kerry’s plan could stimulate job growth. However, critics are likely to argue that Kerry’s plan will prevent U.S. companies from staying competitive in the global market. Some say that U.S. manufacturers need to outsource in order to keep costs down, which allows them to stay in business and continue providing some jobs and revenue to the United States.

Ideas coming from outside the parties

On April 12, 2004, Newsweek suggested some common-sense tax solutions that journalist Allan Sloan says would create a fairer tax system. Among them is a proposal for "a war surcharge," or a special tax to cover the enormous cost of Iraq and Afghanistan. Sloan also suggests reforming the alternative minimum tax, which he says is "arbitrary, unfair, and confusing, and has morphed from a trap to catch a handful of rich tax avoiders into a snare for the masses." Sloan isn’t quite sure how to get rid of the AMT; he just knows it’s unfair. He also recommends keeping the new 10 percent tax bracket which benefits the poorest Americans - an idea with which Bush and Kerry both agree.

What do you think? Discuss these ideas with other WomenMatter readers in one of our online forums. If Jobs, Taxes, and Benefits are important for you, sign up for an e alert and we’ll update you on the issue. And don’t forget to register to vote and let your representatives know what you think.

Article Posted on: 4/23/2004

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