Monday, February 04, 2008

Obama's plan for the tax man

Tomorrow is "Super Tuesday". Chances are that a clear Republican winner will emerge at the end of the day but the Democratic contest will still be too close to call. FWIW, my personal choice for the presidency would be Ron Paul (Yes, unlikely), McCain, then Obama, in that order. McCain is the only Republican that stands a chance in the general election according to polling results summarized at RealClearPolitics.

The DC Current column in this week's Barron's (subscription) featured an interview with Austan Goolsbee, Obama's economic policy advisor, and we have a preview of tax policy under President Obama. Some highlights:

He would hike most rates on dividends and capital gains from their current top of 15% to between 24% and 25% in order to generate new revenue and pay for middle-class tax simplification... That's less than the 28% rate under Ronald REagan, and nore than the 20% rate under Bill Clinton.
To insure against a negative impact on innovation and new business formation, Obama would have a zero rate on capital gains for entrepreneurs, venture capitalists and small-business owners forming new enterprises.
And for ordinary income, Obama would allow the top marginal rates to return to the Clinton era's 39.6% versus 35% today. Obama would also eliminate all tax shelters and loopholes.
Fore moderate wage earners who take the standard deductions, tax filing would be simplified. The Internal Revenue Service would figure out their taxes for them and send them a one-page form to sign, reducing preparation costs.

Even with a Republican in the White House, it's probable that the Bush tax cuts will not become permanent given the Democratic control of Congress. However, a further increase of the capital gains rate to 25% (from the Clinton era's 20%) would have pretty dire consequences for the stock market.