Comparing the Obama and McCain tax plans (Proceedings)

As we sit here, the election is only a few days away. There appears to be very little difference in the polls. Where there is a difference – a big one – is in the two candidates tax plans.

How do the results of this election impact your finances? Below are some highlights of Obama's and McCain's tax plans.

Barack Obama on Taxes

POSITION SUMMARY

• Several tax increases for highest-income earners

• Tax cuts for low-and middle-income earners and many other specific groups

• 5-minute filing for taxpayers who do not itemize

• Has not pledged to balance budget

• Spending increases for healthcare, energy, military

Senator Obama has called for the "restoration of balance" in the tax code away from corporations and towards workers, citing a need to create "fairness and a sense that we're all in this together as opposed to each of us being in it on our own."

Tax Increases

Obama has pledged not to increase taxes for any families with incomes lower than about $200,000 per year, but he has proposed several tax hikes aimed at individuals and families earning more than that. First, he will repeal President Bush's tax cuts for households making over $250,000 per year (raising the tax rate on the top income bracket from 35% to 39%). Second, he would apply an additional payroll tax of 4% or less to any individual income above $250,000, though the increase would not take effect for over 10 years. Third, he would increase the tax rate on capital gains from 15% to 20% for only people in that highest income tax bracket, and he would close the "carried interest loophole" so that salaries of hedge fund and private equity firm managers would be subject to income taxes. He has also pledged to crack down on offshore tax havens.

Tax Cuts and Tax Breaks

Obama's tax proposal features a barrage of targeted cuts and credits aimed at many different groups. For workers, he would create a "Making Work Pay" credit for everyone earning less than $150,000 per year. For homeowners, he would create a mortgage credit of 10% on interest payments. For seniors, Obama would eliminate income taxes for those making less than $50,000 per year. For students, Obama would provide a yearly tax credit to fund the first $4,000 of college tuition if the student completes 100 hours of community service that year. For low-income parents, he would have a tax credit for 50% of their child care expenses.

For businesses, Obama has suggested that he would reduce the corporate tax rate if some existing loopholes and targeted breaks for corporations were closed, and also pledges to eliminate the capital gains tax for startup companies. On the estate tax, Obama would exempt all individual estates worth less than $3.5 million and keep the top rate at 45%. He has pledged to "fix" the alternative minimum tax by making it apply only to the wealthiest earners. Finally, Obama would not cut the gas tax, since he argues that it funds important highways and that average people would not see much savings from it.

Tax Simplification

Sen. Obama also plans to simplify the process of tax filing for people who do not itemize their taxes by having the IRS send tax forms pre-filled with employer-provided information. He says that these forms will allow people to finish their taxes in five minutes or less.

John McCain on Taxes

POSITION SUMMARY

• No tax increases, make Bush cuts permanent

• Further tax cuts for people with dependents, businesses, estates

• Create an optional flat income tax

• Balance the budget by 2013

• Cut earmarks, subsidies, other unspecified areas

McCain is a supporter of lower taxes across the board, and argues that "when economies are rough, then you've got to reduce the tax burden on people."

Tax Increases

McCain has said that he will not raise any taxes. He has said he would not repeal the Bush tax cuts, increase the capital gains tax, or increase corporate taxes. In fact, he proposes to make it more difficult for Congress to raise taxes by requiring a 3/5 majority to approve any tax increase.

Tax Cuts and Breaks

McCain plans to make all of President Bush's cuts in income tax rates permanent, and he plans several other tax cuts as well. For individuals and families, McCain will double the tax exemption for dependents (from $3500 to $7000) and fix the Alternative Minimum Tax so that it only applies for upper-income earners. For businesses, McCain would lower the corporate tax rate from 35% to 25%, and he would give a new tax credit of 10% of all wages spent on research and development. For estates, McCain would not eliminate the estate tax entirely, but he would cut it dramatically (from 45% to 15%) and apply it only to estates worth over $5 million. Finally, McCain has also proposed to suspend the federal gasoline tax for the summer.

Tax Simplification

Perhaps the biggest change of McCain's tax plan would be its introduction of an optional flat income tax as a simpler alternative to the current tax code. This would be a system with only two tax rates, a large standard deduction, and a larger personal exemption — with no other exemptions, deductions, or taxes. People could choose to pay this flat tax to save money or to avoid the complex tax preparation that the current system requires. The top tax rate for high-income earners would be 25% — lower than the 35% rate in the current system — so the highest-income earners would receive a lower tax rate if they opt into it.

Key issues to consider:

1. Depending on what your income level is, how much more/less can you expect to pay depending in who occupies the White House?

2. How will small business – like veterinary practices – be impacted

3. How will a potential change in capital gain rates impact potential practice sellers? Are you better of selling sooner rather than later? Are you better of taking all cash than an installment sale?

4. Other small business concerns:

a. Payroll taxes

b. Retirement Plans

c. Equipment Purchases

d. What entity to choose?