The presidential candidates are fighting hard for your vote, and the economy seems to be one of the top issues. To soothe jitters over an economically turbulent near future, Senator Barack Obama proposed a second economic stimulus payment, similar to the one proposed and passed by President Bush and Nancy Pelosi earlier this year.

It’s dubious whether these payments have a direct effect on the economy. They may make some people feel better about the economy—depending on whether they receive a check or they subsidize the benefit for others—which may be a self-fulfilling prophecy. It’s more likely that these proposals designed to boost the economy, which have a nasty habit of showing up in election years or when approval ratings are low (is it just coincidence?), are created more for their public relations benefit.

Similarly, Senator John McCain is calling for a federal gas tax “holiday.” The 18.4 cent national gas tax and the 24.4 cent diesel tax, under this plan, would be suspended between over the summer. Originally planned for the time between Memorial Day and Labor Day, McCain’s campaign website hasn’t updated this issue now that we have passed the first summer holiday.

Someone who believes that gas prices at the pump are determined by supply and demand would argue that lifting a gas tax would simply allow prices to rise up the chain.

Neither a second economic stimulus check nor a gas tax holiday will on its own affect the economy much. It would be great to see some real economic proposals presented by our presidential candidates—ideas whose implementation would provide jobs, manage real inflation, and encourage business innovation while this country learns how to deal with globalization of the economy—rather than gimmicks designed to attract potential voters.

Let’s face it, though, it makes no sense to choose a candidate based on their economic policy, something the Office of the President has little control over thanks to the numerous people involved with setting policy and economic cycles. I can’t imagine that anyone in this country is undecided between McCain and Obama, but the final decision should be based more on who you want appointing Supreme Court justices and who you want initiating military actions (something that used to be left up to the Congress). These are the modern major powers of the Presidency with lasting effects.

McCain resurrects call for gas tax holiday, CNN Politics, June 9, 2008

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.

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.

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.

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.

Clinton 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]

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?

I started taking a look at the proposals for revision of the income tax code being tossed around by the latest presidential candidates yesterday. The Democrats are in favor of continuing the Bush administration’s tax cuts, but only for certain individuals. They also support a number of tax cuts that I’ll write about in the future.

Meanwhile, here are the Republicans’ thoughts on income tax.

Rudolph Giuliani wants to make the Bush tax cuts permanent and lower tax rates for corporations. He may consider lowering the marginal tax rates for individuals as well.

Mitt Romney, like Rudy, would write the existing tax cuts for individuals in stone and lower corporate taxes. He would like to drop the taxes on interest, dividends and capital gains for taxpayers with an income under $200,000.

John McCain would like to make the Bush tax cuts permanent and further simplify the tax code. McCain is considering removal of the Alternative Minimum Tax, which was originally designed to keep higher income individuals from avoiding a significant portion of what would otherwise be their tax bill. Thanks to inflation, more and more middle class individuals are caught paying the Alternative Minimum.

Fred Thompson would also like to keep the Bush tax cuts on the books and remove the Alternative Minimum Tax. He wants to lower corporate taxes and eliminate the estate tax. Thompson has also suggested giving tax payers a choice between typical tax rates and a somewhat “flat tax.”

Mike Huckabee wants to do away with the income tax and replace the system with a higher sales tax of 30%. Theoretically, the government would send checks to all taxpayers each month to reimburse them for a portion of these taxes to ensure that those who must spend close to their entire income aren’t unfairly burdened.

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