What You're Really Voting For

What You'll Pay in Taxes

Who says George W. Bush has a legacy problem? If either McCain or Obama gets his way, most people will get to keep the big tax cuts Bush won in 2001 and 2003.

The peculiar feature of the Bush tax cuts, which lowered the government's take on income, estates, capital gains and dividends, is that they were temporary, at least on paper. After 2010, both income tax rates and the rates on capital gains and dividends will automatically shoot back up.

McCain proposes to call all of this off and also wants to lock in a permanent estate-tax cut. Obama just calls off most of the hikes.

The top two marginal income tax rates would rise under the Democrats' plan, bringing the 33% bracket up to 36% and today's 35% bracket up to 39.6%. The top rates on capital gains and dividends will go up from 15% to 20% for people earning over $250,000.

Obama would tax estates much more than McCain but still less than at the rate they'd be taxed after 2010 if the law didn't change. Both Obama and McCain say they'll extend the current "patch" that keeps more taxpayers from falling under the alternative minimum tax.

But Obama and McCain also have some new tax goodies to hand out. They go in distinctly different directions: McCain would reduce the top rate on corporate income tax from 35% to 25%, a move that he says will make American businesses more competitive.

The Republican's main tax cut for the middle class comes in the form of a higher exemption for dependents: You'd be able to write off $7,000 per child by 2016.

Obama, meanwhile, is all about middle-class tax credits. There are new breaks for having a job, for going to college and for paying mortgage interest (if you don't earn enough to benefit from the current deduction).

Many of Obama's credits are refundable, which means the government will in essence write a check to make sure that you get the full value of the credit even if it's more than you owe in taxes.

Under the Obama plan, some of the poor would in fact pay a negative tax - that is, they'd get money back from the government - even after including payroll taxes.

"It's social spending through the tax code," says economist Roberton Williams of the Tax Policy Center (TPC) in Washington, D.C. (McCain also uses refundable credits but only in his health plan.)

Overall, McCain would cut taxes by about $1,600 per household in 2009, while Obama would cut them by about $330, according to an analysis by the TPC. By 2012, Obama would raise total taxes, while McCain would still cut. (That's not counting the tax effects of their health plans.)

But those rough averages don't even begin to tell you what you'd actually pay. For most people, perhaps surprisingly, Obama is the bigger tax cutter in any year. Check out the table at the bottom of the page.

McCain's tax cuts skew heavily to households at the top end of the income ladder, with the top 20% enjoying an average $6,500 cut. Obama, thanks in part to those credits, gets more cuts to lower- and middle-income people, to the tune of about $1,000 for most households in 2009.

Even people in the upper-middle-income level get a somewhat larger average cut from Obama than from McCain. On average, the top 5% of earners would be hit with a tax hike under Obama next year, or the top 10% by 2012.

What Would They Do to Your Tax Bill?

John McCain would lower everyone's taxes but give the wealthy the largest cuts. Barack Obama would hike taxes on the most affluent.

What They'll Do to the Budget

Sounds like you'll do okay with either guy, right? Well, here comes the spoiler: Those cuts won't come for free.

Even before the financial crisis came up, the government had been running significant budget deficits. And it will continue to do so under both the Obama and McCain plans, at least if spending comes in as the Congressional Budget Office projects.

Plus, there are even bigger fiscal challenges coming down the road, thanks to rising costs in Medicaid and, to a much lesser extent, Social Security.

Here's why that matters: The economic drag of debt can offset whatever growth you'd hope to stimulate with the tax cuts. And eventually, somebody's going to have to pay the bill. Yes, that means you - or your kids.

Says Andrew Yarrow, vice president of Public Agenda: "The sad but sort of obvious truth is that taxes will have to go up in the aggregate." Just not in this term apparently.

Both sides say they'll slash spending as well as taxes. Color the TPC's Williams skeptical. "They say they'll get rid of unnecessary spending, but most of the specific action is on the tax side," he says.

Obama needs to find fewer cuts, since his tax plan would raise $1.2 trillion more in revenue than McCain's plan over the next 10 years. And of course, he plans to get out of Iraq sooner, which should certainly save the country a few bucks.

But he also has big ambitions for government at home, which will undoubtedly cost more than he hopes. And unlike McCain, he hasn't committed to a date for balancing the budget.

"We have to recognize that [the deficit puts us] in a very deep fiscal hole," says Jason Furman, Obama's economic policy director. "We're also in a deep hole in terms of middle-class income, health care, college and a lot of the most important things in our society. We're not going to solve both those problems in Year One of an Obama administration."

Obama has acknowledged that the current financial crisis means he won't be able to push for his full agenda early in his term but hasn't said what he'd put on the back burner.

McCain talks even more about aggressive spending cuts - and he'll need them. Trouble is, there aren't a lot of easy targets: The earmarks McCain so often attacks are a tiny slice of the budget - just $18 billion vs. a $500 billion deficit. His domestic policy advisor, Douglas Holtz-Eakin, talks about reining in Social Security and Medicare spending.

Point out that these are two of the more bulletproof programs on the Hill, and Holtz-Eakin responds, "That's why you have to change the focus of Washington. Look, the people who are afraid of John McCain are the people who think he might succeed."

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