Friday, August 31, 2012

A Comparison of the Tax Platforms of the Two Candidates


Table based on campaign platforms, legislative histories and
statements as of July 1, 2012
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Issue

    2001 and 2003 "Bush" tax cuts
    The tax cuts are scheduled to expire at the end of the year, which would:
  • raise rates across the tax brackets, with the top rate going from 35% to 39.6%;
  • reinstate phaseouts for personal exemptions and itemized deductions;
  • repeal the enhanced child credit and other tax benefits; and
  • raise the top rate on capital gains and dividends from 15% to 20% and 39.6%.

Romney
  • Romney supports permanently extending all the tax cuts and further reducing rates as part of tax reform (see Tax Reform section below).

Obama
  • Obama has called for a one-year extension of the tax cuts for most Americans while rolling back the tax cuts on income exceeding $200,000 for single filers and $250,000 for joint filers.
  • In the past he has proposed permanently extending the tax cuts below those income thresholds, but in 2010 he agreed to extend the tax cuts for all income levels for two years in exchange for an extension of enhanced unemployment benefits and an individual payroll tax holiday, as well as other nontax items.
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Issue

    Estate and gift taxes
    New rules enacted in 2010 provide an estate and gift tax exemption of $5 million and a rate of 35%. Without legislation, these figures will revert to $1 million and 55% in 2013.

Romney
  • Romney proposes full repeal of the estate tax.

Obama
  • Obama has proposed to make permanent the 2009 transfer tax rules, which provided a top estate and gift tax rate of 45% and an exemption of $3.5 million.
  • He agreed, however, to the 2010 compromise that set the estate and gift tax exemption at $5 million and the rate at 35%.
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Issue

    Alternative minimum tax (AMT)
    The AMT is not indexed for inflation, so exemption must be adjusted. The most recent AMT relief expired at the end of 2011.

Romney
  • Romney proposes full repeal of the AMT.

Obama
  • Obama signed legislation raising the exemptions levels in the annual AMT "patches" but has also proposed replacing the AMT with the new "Buffett Rule," which would impose a 30% effective tax rate on individuals with income of at least $1 million.
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Issue

    Tax extenders
    Many popular tax provisions, such as the research credit, expired at the end of 2011 and have not yet been extended.

Romney
  • Romney has not specifically outlined his positions on most tax extenders but has said he supports enhancing the research credit and making it permanent.

Obama
  • Obama has previously agreed to temporary extensions of the "extender" provisions, and his last budget proposal offered full retroactive extensions for 2011.
  • He has proposed making the research credit permanent and increasing the alternative simplified credit rate from 14% to 17%.
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Issue

    New tax incentives
    After the financial crisis and economic downturn, lawmakers enacted many new tax incentives to boost the economy and provide taxpayer relief. Since then, they have not been able to agree on new tax incentives to support the recovery.

Romney
  • Romney's tax platform focuses on rate reductions rather than targeted tax provisions. As governor, however, he did enact several targeted tax provisions, including:
    • an extension of the investment tax credit,
    • a biotech manufacturing tax credit, and
    • property tax relief for seniors.
  • When the Massachusetts deficits turned into a surplus, he proposed lowering the state income tax rate from 5.3% to 5%.

Obama
  • Obama has enacted many new tax incentives during his term, including:
    • the "making work pay" tax credit,
    • tax incentives for hiring unemployed workers,
    • an individual payroll tax holiday, and
    • 100% bonus depreciation.
  • He currently supports extending 100% bonus depreciation and enacting a 10% credit for employer wage increases, up to a maximum of $500,000. For all the incentives he has proposed in his budget, see TLU 2012-02.
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Issue

    Carried interest
    The profits interest or "carried interest" in a partnership is generally taxed as capital gains, but many lawmakers support treating it as ordinary income.

Romney
  • Romney said during his 2008 primary run that he supported retaining the current tax treatment of carried interest, but this year he has said only that the issue should be examined.

Obama
  • Obama's budget proposals have repeatedly called for a change in the taxation of carried interest to make "investment services partnership interests" ordinary income.
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Issue

    Deficit
    The spending "sequestration" begins in 2013, when the "Bush" tax cuts expire. This "fiscal cliff" roughly coincides with when the debt limit will be reached. Lawmakers will debate whether to replace spending cuts and tax increases with other deficit reduction measures, and whether tax reform should play a role.

Romney
  • Romney largely kept a promise not to raise taxes while facing a $2 billion deficit as governor, but he did raise some revenue with user fees and tax changes characterized as "loophole closing," including:
    • imposing income taxes on nonresidents selling real estate through partnerships,
    • expanding sales taxes to include downloaded software, and
    • adding penalties for underpayment of tax and activities related to tax shelters.
  • Romney has signed the Americans for Tax Reform pledge not to raise taxes, a shift from his run for governor, when he declined to do so.

Obama
  • Obama has consistently said revenue should be part of a deficit solution. During debt limit negotiations, he would not agree to entitlement reform without revenue increases.
  • He has proposed raising revenue through tax reform and has also offered many revenue-raising provisions in his budgets, including:
    • repealing the last-in, first-out method of accounting;
    • repealing oil and gas incentives; and
    • changing worker classification rules.
  • For a list of many more revenue proposals, see TLU 2012-02.
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Issue

    Tax reform
    Lawmakers are seriously discussing tax reform, and many want to use the "fiscal cliff" and the expiration of the "Bush" tax cuts as leverage. The tax reform blueprints from both Obama and Romney lack important details and do not fully explain how their revenue goals would be achieved.

Romney
  • Romney supports lowering corporate and individual tax rates in exchange for repealing tax incentives, including:
    • lowering the corporate rate to 25%,
    • lowering the top individual rate to 28%,
    • retaining the 15% top rate on capital gains and dividends,
    • retaining the research credit, and
    • providing a 0% rate on interest, dividends and capital gains for taxpayers with income of less than $200,000.
  • Romney has not explicitly identified the tax expenditures to be repealed in exchange.

Obama
  • The president believes corporate reform can be achieved separate from individual reform. Obama's tax reform blueprint proposes:
    • lowering the corporate rate to 28%;
    • retaining the research credit;
    • retaining and increasing the Section 199 deduction, while narrowing its focus;
    • eliminating unidentified tax benefits to go with those identified in his budget; and
    • raising revenue through targeted limits on existing tax rules, including:
      • accelerated depreciation,
      • deductions for interest, and
      • the tax treatment of pass-throughs..
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Issue

    International tax rules
    The approach to taxation of offshore activities provides one of the starkest contrasts between Democrats and Republicans.

Romney
  • Romney has said he supports shifting toward a "territorial tax system," in which offshore earnings are largely exempt from tax through a dividends-received deduction.

Obama
  • The president's tax reform plan explicitly rejects a move to a territorial tax system. He instead proposes changes that would tighten international tax rules, including a new minimum tax on foreign earnings and proposals to limit the ability to place foreign income in low-tax countries. See TLU 2012-02 for the international proposals in the budget.