Presidential candidates on tax policy

On many rural issues, this year's presidential candidates differ greatly in how to address rural America. Here is a look at how each would change current tax policy.

McCain: Sen. John McCain says he will keep the top tax rate at 35%, maintain the 15% rates on dividends and capital gains, and phase-out the Alternative Minimum Tax. He also wants to cut the corporate tax rate from 35% to 25%. His plan also includes a first-year deduction, or "expensing" of equipment and technology investments. For more on McCain's tax plan, click here.

Obama: Sen. Barack Obama says his plan would provide a tax cut for 95% of households and simplify the tax code. He supports a repeal of the estate tax for 99.7% of estates. For the remaining 0.3% of estates that have more than $7 million per couple, he would retain a rate of 45%. "This policy would cut the number of estates touched by the tax by 84% relative to 2000," Obama said. In regard to capital gain, Obama plans to maintain the current rate for families with incomes below $250,000. Those in the top two income brackets would pay a new rate of 20%, which is equal to the lowest rate that existed in the 1990s and the rate that President Bush proposed in 2001. For more on Obama's tax plan, click here.

Bottom line: Roger McEowen, ag tax specialist at Iowa State University, explained from a purely political standpoint, the Democrats could be expected to not allow McCain to continue the 2001 and 2003 tax cuts (which need legislation to continue), but the Democrats would not likely oppose Obama if he were to choose to continue the tax cuts. The question is whether he would, McEowen said. "Failure to continue the tax cuts would result in a huge tax increase, with the bulk of the burden hitting the middle-to-low income ranges."  

Specifically on Obama's statement regarding tax relief to 95% of household, McEowen said it isn't possible. "The tax burden on the bottom 50% of tax filers is only 2.99%. So a significant number of taxpayers don't pay any federal income tax to begin with. How can he reduce zero to zero?"

McEowen added that if Obama raises capital gain taxes, it would provide a further disincentive for investment in U.S. capital, especially as the U.S. already has relatively high capital gain rates worldwide.

Economists oppose Obama's tax plan

Hundreds of economists have signed a statement pointing out the shortcomings of Obama's tax plan. The economists note their concerns with his proposals to increase tax rates on labor income and investment. They also note that Obama's proposed dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. Likewise, his proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.

After hearing such economic criticism of his proposals, Obama has apparently suggested that he might postpone his tax increases, perhaps to 2010. But, the economists note that it is a mistake to think that postponing such tax increases would prevent their harmful effect on the economy today. They point out that the prospect of such tax rate increases in 2010 is already a drag on the economy. Businesses considering whether to hire workers today and expand their operations have time horizons longer than a year or two, so the prospect of higher taxes starting in 2009 or 2010 reduces hiring and investment in 2008.

Read the economists' statement on Obama's tax plan.