Obama, McCain Propose Major Tax Changes
While the war in Iraq, the sagging economy and the nation’s crumbling infrastructure have taken center stage on the campaign trail, tax and fiscal policy will be a major issue on the next president’s domestic policy agenda. In the past year, the federal budget deficit has ballooned, as large projected increases in spending on Social Security and Medicare threaten to place significant demands on the federal government in coming years. Now, with nearly all of the tax cuts enacted since 2001 set to expire at the end of 2010, both Obama and McCain have proposed major tax changes.
As the accounting industry braces for these changes, salaries for accountants continue to climb along with demand. Despite the slowing economy, accountant salaries increased 6.9% last year (their highest levels ever), according to a recent survey conducted by the Institute of Management Accountants (IMA). Meanwhile, demand for experienced accountants is surging. Among the reasons for the growing need for accountants is an increase in corporate governance regulations and heightened focus on risk. The American Institute of Certified Public Accountants (AICPA) contends that the volume and complexity of financial and non-financial information will continue to expand along with the need for accountants and auditors to interpret and analyze data and participate in the decision-making process. Moreover, hiring qualified professionals remains the most critical concern for U.S. firms, according to the AICPA. Executive search firm, A.E. Feldman, says accounting jobs are opening up as firms address mounting resource demands. Current opportunities include, tax manager jobs, audit jobs, international tax jobs, and business valuation jobs. Demand is also growing for candidates with experienced in hedge fund accounting.
McCain: Tax Cuts, Small Business Key to Job Growth
John McCain says he believes he can spur businesses to create jobs through tax cuts.
John McCain says small business is the key to job growth, and low taxes are essential to creating Jobs…and keeping jobs… in America. The presumptive Republican nominee has some immediate relief measures, such as suspending the 18.4-cent federal gas tax, but many of his proposals center on keeping taxes low. McCain plans to permanently extend the 2001 and 2003 tax cuts, keeping the top tax rate at 35% and maintaining the 15% rates on dividends and capital gains. He also plans to increase deductions for taxpayers supporting dependents, phase-out the Alternative Minimum Tax (AMT) and cut the corporate tax rate from 35% to 25%.
“There is much that needs to be done to get the economy on track,” says McCain’s campaign. “John McCain’s Jobs for America Plan will … keep taxes low to create good jobs here in America, and give American workers renewed confidence in their economic future.”
“Small businesses are the heart of job growth and raising taxes on them hurts every worker,” says McCain. On his website, McCain says small business will benefit from:
- Low individual tax rates – sole-proprietorships, partnerships, landlords and others are taxed under the individual income tax.
- Access to capital from low tax rates on dividends and capital gains.
- A lower corporate tax rate to enhance international competitiveness and keep good jobs here in the U.S.
McCain also plans to establish a permanent tax credit equal to 10% of wages spend on R&D to simplify tax code and make the U.S. more competitive on a global scale. “At a time when our companies need to be more competitive, we need to provide a permanent incentive to innovate, and remove the uncertainty now hanging over businesses as they make R&D investment decisions,” according to McCain.
Additionally, the Republican presidential contender proposes to reduce the estate tax rate to 15% and permit a generous $10 million exemption.
Critics of McCain’s plan, however, say it simply gives more money to the wealthy. Democrats also contend his plan will significantly increase national debt and will not solve social security or any other fiscal problems.
Obama: Restore Fiscal Discipline
Democratic presidential contender, Barack Obama, says he “will protect tax cuts for poor and middle class families, but he will reverse most of the Bush tax cuts for the wealthiest taxpayers.” Obama plans to permanently extend certain provisions of the 2001 and 2003 tax cuts primarily affecting taxpayers with incomes under $250,000, but repeal the cuts in the top two marginal income tax rates ahead of their scheduled expiration in 2010. Senator Obama would also extend the AMT.
Most recently, Obama tied off the loose ends of his tax policies, saying he would set the tax rates paid on most dividends and capital gains at 20% - substantially below where they stood during most of President Clinton’s presidency and lower than most Republicans expected, reports The Washington Post. The report also states he has clarified that that a proposal to impose Social Security taxes on incomes over $250,000 would not start until at least a decade from now.
Like his Republic rival, Obama would also increase the estate tax exemption and reduce the estate tax rate compared with current law in 2011 (though McCain would cut the tax much more than Obama.)
Lastly, Obama identifies a variety of steps, including basis reporting for capital gains, taxing carried interest as ordinary income, and enacting sanctions on international tax havens that don’t cooperate with enforcement efforts, although he would also need additional as-yet-unspecified policies to achieve his revenue target for base broadening, reports taxpolicycenter.org.
How Does it All Add Up?
Although both candidates have at times stressed fiscal responsibility, their specific non-health tax proposals would reduce tax revenues by an estimated $4.2 trillion (McCain) and $2.8 trillion (Obama) over the next 10 years, according to taxpolicycenter.org. Moreover, against current policy the group says Senator Obama’s proposals would raise $800 billion and Senator McCain’s proposals would lose $600 billion.
The two candidates’ tax plans would have sharply different distributional effects. Taxpolicenter.org states, “McCain’s tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households.” Obama, on the other hand, offers larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers.
The group does suggest that McCain’s reduced individual and corporate rates could improve economic efficiency and increase domestic investment. It adds, however, that the larger future deficits would reduce and possibly negate any positive effect. In contrast, the group says Obama’s proposed new tax credits could encourage desirable behavior, although he would also direct new subsidies at an already favored group—seniors —and an already favored activity—homeownership—which could probably be better directed elsewhere.
A.E. Feldman’s Accounting Division is constantly researching industry trends and developments. To learn more about these issues or inquire about existing and future job opportunities in accounting, the lines of communication are open. Contact the A.E. Feldman’s President, Mitch Feldman and the firm’s cutting edge accounting recruiting team here.
