Obama Proposes Second Economic Stimulus Package

Presidential candidate and Senator Barack Obama is calling for a second economic stimulus package to help boost the economy where the first attempt may have failed.

This second stimulus plan, supported by the Democrats in Congress, will provide a $50 billion additional incentive to stimulate the economy targeted to those who have lost jobs or homes, and who are facing cutbacks in state and local governmental services.

The $50 billion would come from the reduction of corporate tax breaks rather than future individual tax payments.

Democrats back Obama’s call for economic stimulus, Reuters, June 10, 2008.

McCain vs. Obama: Your Future Tax Bill

The nonpartisan Tax Policy Center released a report yesterday that explains in detail the effect that a McCain presidency and an Obama presidency would have on the tax bill for American households. The data are stratified by income range and reflect a wide difference in stated policy between the two candidates.

In addition to making the 2001 and 2003 tax cuts permanent, McCain says he would double the exemption for dependents, lower the corporate tax rate, make expensing rules more generous for small businesses and lessen the bite of the estate tax and Alternative Minimum tax.
The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $1,200. That means their after-tax income would rise by 2%...
Obama’s plan would keep the 2001 and 2003 tax cuts in place for everyone except those making more than roughly $250,000, and he would increase the capital gains tax. Obama would also introduce new tax breaks for lower and middle-income groups…
The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $160 under Obama’s plan. That means their after-tax income would rise by 0.3%.

It’s also worth noting that McCain’s plan calls for the biggest percentage (that is, most meaningful) tax decrease for the highest earners while Obama’s allows the lowest income earners to receive the biggest break.

This table from the Tax Policy Center study illustrates how after-tax income will change in 2009 if either of the candidate’s tax policies are enacted. A lower after-tax income indicates higher effective tax rates due to a variety of proposed changes to the tax code.

Obama/McCain Taxes

A chart provided by CNN Money defines the income ranges more succinctly and provides hard numbers. I fall in the middle, and would hypothetically see a decrease in my tax bill amounting anywhere from about $1,000 to $2,600 depending on how much I earn and who ends up in office.

MCCAINOBAMA
IncomeAvg. tax billAvg. tax bill
Over $2.9M-$269,364+$701,885
$603K and up-$45,361+$115,974
$227K-$603K-$7,871+$12
$161K-$227K-$4,380-$2,789
$112K-$161K-$2,614-$2,204
$66K-$112K-$1,009-$1,290
$38K-$66K-$319-$1,042
$19K-$38K-$113-$892
Under $19K -$19-$567

This speculation is interesting but mostly academic. These figures are not absolutes for three reasons. First, we’re dealing with politicians, so their proposals might change as they hammer out details, talk to advisers, and determine what strategy will get them into office. Second, their opinions may change once the winning nominee is sworn in to office. Third, any policy changes have to find their way through Congress first, where compromises must be negotiated before anything gets done.

So take these predictions and studies with a grain of salt.

A Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans [pdf], Tax Policy Center, June 11, 2008.
What They’ll Do To Your Tax Bill, Jeanne Sahadi, CNN Money, June 11, 2008.

Will a Gas Tax Holiday or Taxing Oil Companies Help the Economy?

To help Americans pay for the increasing price of a gallon of gas, Hillary Clinton is suggesting a suspension of the 18.4 cent per gallon tax on gasoline and 24.4 cent per gallon tax on diesel from Memorial Day through Labor Day while enacting a “windfall profits” tax on the oil companies which have been making money hand over fist through out 21st century so far. John McCain is also in favor of a gas tax “holiday,” but Barack Obama calls this strategy pointless and possibly more harmful for the economy.

Obama figures that the gas tax holiday would save American consumers about 30 cents a day while underfunding the federal fund that pays for road improvements. And while we’re in an election year, Obama points out that Clinton and McCain’s positions are political posturing moves rather than good economic solutions.

Ignoring the fact that when a tax holiday is in practice, gas prices might simply rise to negate the savings and match what consumers are willing and able to pay, the 18.4 cent theoretical reduction in a gallon of gas will be almost invisible. With a gallon of gasoline around $3.60 for me here in New Jersey, this 5% discount doesn’t even bring the price down to its level from a few months ago.

gas pumpsClinton suggests paying for the loss of government income by increasing windfall profits taxes for the oil industry. If there is a gas tax holiday, should oil companies pay for the loss of government income through taxes assessed for earning significant profits in this economy? I feel no pity for the large corporations, and I wouldn’t mind if their taxes increase. However, I don’t think this solution would improve the economy.

As a country, we seem to be willing to continue spending on gasoline no matter what the price, but perhaps that is only because we have little choice. If we stop driving, we stop going to work, earning money, and feeding our families. We’re ready to spend as much on gasoline as necessary to continue our lives, giving oil companies the freedom to keep pushing prices upwards.

The oil industry obviously is not happy about the idea that their profits could be taxed, claiming that taxes would eat into available capital for new production, but their profits are mostly used for buying back stock rather than research and development.

Rather than Clinton’s plan to tax oil companies, McCain wants to freeze or cut spending to pay for the gas tax holiday. Obama thinks these suggestions sound nice to voters but would have little real effect. What do you think?

Photo credit: x-eyedblonde
Obama attacks Clinton’s gas tax plan [AP]
McCain calls for a summer ‘gas-tax holiday’ [AP]
Taxing oil profits: Proceed with caution [CNN Money]

How the Future U.S. President Wants to Tax You

There’s no need for me to explain in detail the favored tax policy by each of the four leading candidates for the President of the United States for two reasons. First, Jeanne Sahadi wrote an excellent tax policy summary for Hillary Clinton, Barack Obama, John McCain and Mitt Romney. Secondly, the candidates’ stances now may be indicative of what will happen once they are sworn into office, but there are hurdles built into the system. Additionally, candidates’ positions can change between now and 2009

Here are some things to take away from what they candidates say they want.

  • They all want to preserve recent tax cuts for low- to middle-income earners.
  • The two Republicans want to preserve recent tax cuts for households earning over $250,000 while the Democrats want to repeal these cuts.
  • Romney wants to lower the rate on the lowest tax bracket to 7.5% from 10% and exempt workers over 65 from having to pay Social Security tax.
  • Obama wants to eliminate income tax for seniors earning less than $50,000 and add a $500 to $1,000 credit to all households with working family members (phased out for households with income between $150,000 and $200,000).
  • The two Democrats want to expand the earned income tax credit and the saver’s credit.

    There are more differences in the article.

    The big questions are whether these positions will change as campaigns get tighter and we approach the general election, whether opinions will change once the new President is sworn in, and whether they can get the changes pushed through Congress.

    According to the polls, the economy seems to be a hot issue among primary voters, and the candidates’ positions on income tax are related to this priority. Will the economy still be in the front of voters’ minds when the general election rolls around?

The Candidates’ Income Tax Plans: Democrats

Now that we’ve looked inside the financial reports of the major candidates for President of the United States, let’s take a look at the Democrats’ plans for reworking the income tax system if elected. They are as one would predict, very similar.

Hillary Clinton wants to eliminate the “Bush tax cuts” for those earning more than $250,000 (and provide fewer opportunities for deductions) while preserving the cuts for everyone else. She wants to limit tax-free compensation for high-income earners to help pay for health insurance. She would like to raise the rate for the “carried interest” tax, a loophole that lets some fund manage claim their income is a capital gain.

Barack Obama would eliminate income tax for seniors earning less than $50,000, and like Clinton, would let the Bush tax cuts expire for those earning more than $250,000. Obama will also raise the tax rate for carried interest.

John Edwards would let the Bush tax cuts expire for those earning more than $200,000 and categorize fund managers’ pay as regular income, not carried interest.

Your income taxes: What the candidates want [CNN Money]

What’s in the Candidates’ Wallets?

Money Magazine has an eye-opening look inside the personal financial reports of the leading presidential candidates, including asset allocations and income sources. The article points out anything out of the ordinary with the candidates’ holdings and even offers money management suggestions from a financial adviser.

Hillary Clinton. Net worth: $34.9 million. 2006 income: $12.1 million. More than 85% of her asset allocation is in cash and bonds.

John Edwards. Net worth: $54.7 million. 2006 income: $3.7 million. As a former consultant for Fortress Investment Group, 43% of his assets are in hedge fund investments.

Rudolph Giuliani. Net worth: $52.2 million. 2006 income: $17 million. In 2006, Giuliani averaged one speech every three days for a total of $11.4 million of his $17 million income.

John McCain. Net worth: $40.4 million. 2006 income: $3.9 million. John McCain has donated all of his income from writing—and he has written several books—to charity. Everything except $50,000 is in his wife’s name or in a trust for his children.

Barack Obama. Net worth: $1.3 million. 2006 income: $991,000. $350,000 is split between a socially responsible index mutual fund and a managed fund with a 60/40 mix of bonds and equities.

Mitt Romney. Net worth: $202 million. 2006 income: $37.6 million. His high income is due to timely sales of stocks that might be deemed “politically sensitive,” like those of European oil companies that do business with Iran.

Fred Thompson. Net worth: $8.1 million. 2006 income: $9.4 million. Fred’s acting career has seen him playing POTUS as well as other political roles, including himself. He has $3.2 million in cash right now. If he doesn’t successfully run for president, that cash will help him pay for his retirement.

Millionaires-in-Chief [Money Magazine]
Image credit: marcn

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