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McCain, Obama tax plans have big differences

BY RANDI F. MARSHALL | randi.marshall@newsday.com

7:20 PM EDT, October 13, 2008

The differences are clear - but the details aren't simple.

Barack Obama has said he would lower or hold taxes steady for everyone earning less than $250,000 and raise taxes on those with incomes above that threshold. He talks about "fairness" in the tax system, saying lower- and middle-income families should get the most relief.

John McCain offers broader and larger tax cuts, by making President George W. Bush's tax trims permanent. Low-income taxpayers would get less of a reduction, but high-income households and corporations would get cuts, too. McCain says more disposable income among high-earning families, business owners and investors will trickle down to everyone else.

At first glance, local economists said, that picture makes McCain a potentially better bet for Long Island, since the region has more high-income households with money that could be spent here if it's not headed for Washington, D.C.

Census data shows that 12.5 percent of Nassau County households and 8.2 percent of Suffolk County households earn more than $200,000, compared with 4 percent of U.S. households. That means that a higher proportion of Long Island families, compared with the nation, could end up with a tax increase under Obama and big tax cuts under McCain.

"When you further squeeze your residents, whether they're high-income or low-income residents, you're impacting consumer spending negatively; they'll have less discretionary purchasing power, they'll spend less and this will hurt the economic growth of Long Island," said Pearl Kamer, chief economist of the Long Island Association.

Yet, median income is $89,782 in Nassau and $83,447 in Suffolk - levels where taxes remain the same or less under McCain or Obama.

And the details mean every taxpayer's situation is different. Obama recommends tax credits for some groups, along with an increase in the top tax rate on capital gains and dividends, and an additional Social Security payroll tax on earnings above $250,000 - a proposal that lacks specifics and is not included in some analysts' calculations of the tax plans' impact.

McCain, meanwhile, hopes to keep the capital gains' and dividends' top tax rates where they are now, while cutting the estate tax rate and the corporate tax rate.

Then, there's the alternative minimum tax, a calculation designed to get the most amount of taxable income out of high-wealth households. The oft-maligned revenue-generating taxing system has led to higher taxes for middle-income households, even though it originally targeted the wealthy. Each year, Congress passes a "patch" to avoid adding millions to the AMT-payer ranks, because the AMT is currently not adjusted for inflation.

While Obama advocates continuing to patch the AMT, McCain said he hopes to eventually eliminate it altogether.

That, too, could be good for Long Island, said accountant Alan E. Weiner, of Holtz Rubenstein Reminick in Melville, since taxpayers are more likely to fall under the AMT if deductions, such as local and state taxes, are higher.

"That hits Long Islanders much greater than in other parts of the country," Weiner said.

But the region also has to look for national economic growth, as plans that help the U.S.' economic funk would help Long Island, said Irwin Kellner, an economic scholar at Dowling College.

Given the economic climate, though, it's possible that proposals today will differ greatly from future reality.

"No matter what they might say on the stump or on the campaign trail, things have a way of changing, either when they get into office or when they're confronted by the realities of the Congress," Kellner said. "Or, for that matter, the economic situation could be very different from the way it is now."