Kamanaut at Chartjunk: McCain's and Obama's Tax Proposals--Just Who Pays What?

There's a great chart available at this link that shows the relative impact of the McCain and Obama tax proposals on various groups of taxpayers according to their income.  Note that the tax increase in Obama's plan hits a very small part of the population (the top 1%), and that the tax decreases are weighted in favor of the lower 60% of the income distribution, while the tax decreases proposed by McCain are heavily weighted in favor of the top 40% of the population. 

The chart  attempts to put in better form (ie, a form that more accurately depicts the relevant information) a graph that first appeared in the Washington Post (available in the Chartjunk blog post linked above).  That chart added information that McCain's proposal results in an average tax cut of 2%:  as ChartJunk's revision of the graph shows by accurate depiction of the taxpayer groupings and the tax impact of the proposals, describing McCain's proposal, with by far the most tax cuts going to the very wealthiest people and only decreases of .2 to .7% for the bottom 60%, as providing a "2%" average tax cut is utterly meaningless.  So, once again, shame on the media for not doing their job of helping Americans understand the candidates' position.  ChartJunk has provided a much more meaningful, and less misleading, depiction of the data.

The Washington Post ran a story comparing McCain and Obama on different issues: Calvin Woodward, McCain and Obama on the Issues, Washington Post, Sept. 15, 2008.  Here's how that article described the two candidates' tax proposals.

TAXES

McCain: Pledged not to raise taxes, then equivocated, saying nothing can be ruled out in negotiating compromises to keep Social Security solvent. Twice opposed Bush's tax cuts, at first because he said they were tilted to the wealthiest and again because of the unknown costs of Iraq war. Now says those tax cuts, expiring in 2010, should be permanent. Proposes cutting corporate tax rate to 25 percent. Promises balance budget in first term, says that is unlikely in his first year.

Obama: Raise income taxes on wealthiest and their capital gains and dividends taxes. Raise corporate taxes. $80 billion in tax breaks mainly for poor workers and elderly, including tripling Earned Income Tax Credit for minimum-wage workers and higher credit for larger families. Eliminate tax-filing requirement for older workers making under $50,000. A mortgage-interest credit could be used by lower-income homeowners who do not take the mortgage-interest deduction because they do not itemize their taxes.

Comments

[Taxrascal]

I'm not sure weighting by population (rather than total taxes paid for each group) actually gives more information. A quick glance at that graph would make it look like Obama's tax increase on the top .1% is smaller in size that the tax cut for the bottom group.

This was apparent to me right away: the main feature of the graph is that the colored blocks portray some number. And that number is "Percentage tax cuts multiplied by population," -- the sum of the percentages of the tax cuts (e.g. if one million people get a 4% tax cut, four million percent) is not a number that I've ever heard anyone use to measure anything about the economy. The amount of the tax cut (percentage cut times taxes paid) would be much more useful.

[LindaMBeale]

I hear you, but I continue to think amount of tax cut as a percentage of taxes paid is not a very helpful piece of information and misleads in terms of the critical distributive justice issue at the heart of the inquiry. Even by itself, taxes paid is not a very informative number, since people with similar incomes pay different amounts of taxes depending on the components of income (capital gains versus ordinary income),etc. In the context of discussing the impact of political candidates' tax proposals, the use of "taxes paid" becomes even less informative, especially if one candidate's materials imply a more generous tax package than the other candidate's proposals would result in. This was the problem with Bush's presentation of the 2001 tax cut as giving the average family a substantial average tax cut: the "average" changes dramatically when the group over which the average is taken changes from people who have fairly similar incomes and tax liabilites to those people combined with one person who has an enormously large income and correspondingly much larger tax liability (the change, ie, when the group of average Joes at the bar is joined by Bill Gates), but the fact that there is a Bill Gates in the room, with the elephantine impact on the average, may not be obvious to everyone. The graph presented in the cited blogpost presents the information in the way most people translate it for themselves--who is being affected--the rich, the poor, the middle class, and how are they being affected.

[andy]

If the bailout costs 1 trillion, I think we can forget about tax cuts from either party.

[LindaMBeale]

You are right on that one, Andy. If the bailout costs a trillion (and there is certainly some possibility that it may), the belt-tightening that will be necessary is not pretty to contemplate.

[was a dem not now]

if you look at the tables for Obama's tax proposals, you will note that the two lowest tax brackets have NEGATIVE federal tax rates.. thereby assuring that these two brackets -- who already PAY NO TAXES will actually recieve "refunds" of taxes that OTHER people paid. I believe Obama refers to this as "economic justice". I believe the rest of the world calls it socialism. I call it punishing those who study hard, work hard and live the American Dream. Really. How else can you justify taking what one person earns and giving it to those that did not?

[LindaMBeale]

Look, tax systems will tend to either redistribute upwards or redistribute downwards. A perfect balance isn't possible, and probably isn't desirable, since it would merely reinforce the status quo (them that has gets). Redistributing upwards exists in our tax system in many places--too many--such as the mortgage interest deduction, the gain on sale of home exclusion, the charitable contribution deduction for the fair market value (rather than invested amount) of stocks contributed to charity and on and on. Redistributing downwards exists in terms of a zero-exemption bracket (which everyone except the most radical liberatarians have consistently favored).

So what should one conclude from that? We have consistently believed in this country that we should protect people at the bottom, by collectively assisting them through government. These are social programs that make sense to sustain democracy and to be decent moral people. We simply do not put the "unbridled greed" of "pure" capitalism above those goals. The free marketarians have tried to do that in various contexts--not surprisingly, perhaps, they were most successful in their "experiments" in countries in south America where they worked with dictators to put free market standards in, and help for the poor out. Living standards plummeted. Read Naomi Klein's book The Shock Doctrine. That's not what most of us want for our country.