While Democrats and Republicans slug it out on the campaign trail, there's one issue of deep concern to accountants that all of the 2008 presidential candidates agree on: the need for reform of the federal tax system.That is where the consensus ends, however. None of the contenders agree on what changes are needed in the Tax Code, or even what constitutes reform. Adding to the confusion, at least some of the candidates have tailored their tax reform positions to their audience -- favoring one course of action while on the campaign trail, but voting the opposite way in Congress.
Sen. Hillary Clinton D-N.Y., for one, wants to pull the plug on the Bush tax cuts, reverse plans for a reduction in the top income tax rates, and preserve the federal estate tax by freezing it at the 2009 exemption level of $7 million per couple. New York's junior senator is also in favor of reducing the marriage penalty, increasing tax deductions for college tuition, repealing the scheduled capital gains tax cuts, and making billionaires pay their fair share.
"I want to restore the tax rates we had in the 1990s, and that means raising taxes on corporations and wealthy individuals," she told Iowa caucus voters earlier this year. "I want to keep the middle-class tax cuts, and I want to start making changes that will save us money."
Despite campaign pledges to help the overtaxed middle class, and talking about the need for saving taxpayers from the Alternative Minimum Tax while on the campaign trail, back on Capitol Hill, Clinton voted against eliminating the AMT.
On the Republican side, Arizona Senator John McCain has done his share of waffling on tax policy, voting against the Bush tax cuts while in Congress, but supporting their extension as a candidate for president.
McCain considers himself a "Reagan Republican" who emphasizes spending cuts coupled with tax reform promoting a "simpler, fairer Tax Code." As president, his first revenue policy priority would be repeal of the AMT, which he says is "eating Americans alive."
McCain opposes replacing the income tax with a 23 percent "Fair Tax" on consumption, but has advocated a flat tax approach to reduce the burden on the middle class. Under his plan, the ceiling for the 15 percent tax bracket would climb from $43,050 for married couples filing jointly to $70,000, and from $25,750 to $35,000 for single taxpayers. The effect would be to give a $3,504 tax cut to a couple with taxable income of $70,000 or more.
While McCain has refused to sign a "no tax increase pledge," there is a populist strain that runs through his positions on taxation. He favors eliminating the charitable deduction because "it only benefits the rich." He also wants to double the current child tax credit and supports repeal of the marriage penalty, estate tax, and special interest loopholes.
Fellow GOP candidate Mitt Romney has been branded "Flip Flop Mitt" by critics who cite his campaign pledge not to raise taxes -- an apparent reversal of his position in 2002, when he declined to sign a similar pledge as governor of Massachusetts. Romney has also drawn criticism from other candidates for failing to support the Bush tax cuts -- a charge that he says misrepresents his position. "I have never opposed the Bush tax cuts," he said during the New Hampshire primary in January.
Unlike McCain, Romney considers the consumption-based Fair Tax -- which replaces federal income and payroll taxes with a national retail sales tax -- worthy of closer study. "There are a lot of features that are very attractive about a Fair Tax," he said. "Getting rid of the IRS is something we'd all love."
Romney's reform strategy would involve lowering the middle-class burden. "I like middle-income Americans to be able to save their money and not have to pay any tax at all on interest, dividends or capital gains," he said, while advocating "a zero rate on capital gains for middle-income Americans."
Hillary's chief rival for the Democratic nomination, Illinois Senator Barack Obama, minced no words when outlining his plan to dismantle the Bush administration's tax cuts. His alternative is a sharply more progressive income tax structure tailored to provide Social Security payroll tax relief to families earning $50,000 a year or less.
Obama is just as direct in opposing repeal of the federal estate tax, a move he claims would cost $1 trillion and provide benefits to only the wealthiest one third of 1 percent of taxpayers. "It would be hard to find a tax cut that was less responsive to the needs of ordinary Americans or the long-term interests of the country," he said.
The Illinois Democrat also wants to restore the taxes on capital gains and dividends, close tax loopholes for corporations, and provide new tax breaks for seniors. Despite his pro-middle class campaign rhetoric, however, Obama voted against curbing the AMT.
Among the other presidential candidates still in the race at press-time, former Arkansas Republican Governor Mike Huckabee has proposed replacing the taxes on income, capital gains and estates with a 23 percent consumption-based Fair Tax, and putting a "Going Out Of Business" sign on the IRS.
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