Presidential candidates' tax plans

Author: Anchor Tess Vigeland, Reporter Scott Tong

Published: October 19, 2004

TESS VIGELAND, anchor:

If the Red Sox can come back from a three-games-to-none deficit to win the American League title and then the World Series--Yeah, you heard me--then what might it take to get Uncle Sam out of his? The federal deficit now stands at $413 billion for the 2004 fiscal year, a record in dollar terms. This election season, both candidates say they have a plan to reduce it, and those plans revolve around your tax dollars. Today, Scott Tong has the latest in our series Ballot Bucks, a buyer's guide to the financial issues of this campaign.

SCOTT TONG reporting:

OK. Try to get this straight.

President GEORGE W. BUSH: We're not going to let John Kerry tax you, 'cause we're going carry Pennsylvania and win in November.

Senator JOHN KERRY (Democratic Presidential Nominee): We will not raise taxes on middle-class Americans.

Announcer #1: (From campaign ad) John Kerry says he'll raise taxes, but only on the rich. Uh-huh.

Announcer #2: (From campaign ad) Once again, George Bush is misleading America.

TONG: That's what they say, but what's it mean to you? We went to tax expert Clint Stretch of Deloitte & Touche. We asked him to look at middle-class taxes and the two plans' complex differences, except there aren't any.

Mr. CLINT STRETCH (Deloitte & Touche): There is no change under either plan. The only change that Senator Kerry is talking about is for people in the top 2 percent to 2 1/2 percent of taxpaying households. I think the top 2 percent is, by definition, not the middle.

TONG: Stretch says neither candidate would change the cuts already in place. Take the classic family of four. If all it cares about is taxes, who should it vote for? Doesn't matter, says Clint Stretch.

Mr. STRETCH: Families at $40,000 and two children are not paying income tax under the current tax system, nor would they under the Kerry plan.

TONG: Stretch says the same household making 60 grand got a 40 percent tax cut under Bush. Kerry wouldn't change that. The big fight, of course, is over the rich. Senator Kerry.

Sen. KERRY: He made a clear choice to pass the bucks to the privileged while passing the buck to our children.

TONG: Clint Stretch says it's true that privilege got the lion's share of the tax cut, if you count dollars, but if you count the tax cut as a percent of taxes paid, he says middle-class families with kids were the winners. Kerry wants to undo the Bush cuts for singles and couples making about $200,000 and up. The president doesn't buy it. He says he can't raise much money be taxing the rich.

Pres. BUSH: Here's the problem with that: The rich hire lawyers and accountants for a reason, so you get stuck with the bill.

Mr. LEN BURMAN (Urban Institute): Empirically, that's just false.

TONG: Len Burman is co-director of the Urban Institute's Tax Policy Center. He says statistics show you can raise more revenue from the affluent.

Mr. BURMAN: They might use accountants and lawyers to avoid tax, but for the most part, when you raise taxes on high-income people, they pay more taxes.

TONG: To Clint Stretch of Deloitte & Touche, the fight over the rich gets at the core of the campaign's competing philosophies, each with a political precedent. In the Bush corner, he hears supply-side Reaganomics.

Pres. BUSH: When your economy is going bad, you want people to have more of their own money in their pocket. They will spend or invest, and when they spend or invest, it means the economy is going to pick up, and sure enough, it has.

TONG: In Kerry's corner, says Stretch, Clintonomics and redistribution.

Sen. KERRY: You know, it's right to roll back the Bush tax cuts for the wealthy and invest in our kids.

TONG: So what are the candidates leaving out?

Mr. STAN COLLENDER (Financial Dynamics): Nobody here wants to talk about the deficit. They're just kind of hoping it will go away.

TONG: Budget consultant Stan Collender of Financial Dynamics.

Mr. COLLENDER: It is really not just a 100-pound gorilla in the room. It's the thousand-pound gorilla, and at some point, it's going to start to get really angry.

TONG: Under the Bush administration, projected surpluses have given way to a $413 billion deficit due to the economy, worse spending and tax cuts. The red ink gets redder under Bush or Kerry, according to the Urban Institute. It estimates each man's budget plan would add a trillion dollars to the deficit over 10 years. Not so, say the campaigns. In fact, each promises to cut the deficit in half. How? There's only one way, says Stan Collender: a raid on Social Security. He says despite projected shortfalls, Social Security now takes in more money than it pays out. And both camps plan to spend that surplus.

Mr. COLLENDER: The Social Security surplus will go up by $125 billion a year over the next five years, and that's the way everyone's planning on reducing the deficit, by hoping that Social Security will bail them out.

TONG: In the past, Collender says, politicians in wartime could ask for financial sacrifice, more taxes or less spending. But the big change in American politics is there's no talk today of giving up anything. It's all about people getting money for nothing.

(Soundbite from Dire Straits song "Money for Nothing")

TONG: In Washington, I'm Scott Tong for MARKETPLACE.

VIGELAND: Tomorrow our series, Ballot Bucks, continues with a look at both candidates' plans to fix Social Security. To check out more of our Ballot Bucks coverage, visit us at marketplace.org and scroll down to Special Features.