McCain Vs Obama

The candidate's policies are broken into four categories: tax, health care, energy, and other spending/savings. To show the effect when programs are fully in place, estimates of budget effects are for 2013. Policies that would enlarge the deficit (or reduce the surplus) are shown as negative numbers, and those that would reduce the deficit (or increase the surplus) are shown as positive numbers.

Tax Policy: -$294 billion

Senator McCain supports renewing and making most of the major tax cuts enacted in 2001 and 2003 permanent, which will otherwise expire at the end of 2010. The cuts include lower individual income tax rates, the expanded child tax credit, reduced tax rates for capital gains and dividends, reduced marriage penalties, the elimination of the estate tax (which Senator McCain would restore in part), and various other provisions. This estimate is the cost of making all of the tax cuts permanent.

Reinstate a Smaller Estate Tax: +$10 billion.

Under current law the estate tax will disappear completely in 2010 and then reemerge at 2001 levels in 2011, taxing estates worth over $1 million at a top rate of 55%. Senator McCain supports supplanting this policy with a permanent estate tax with a top rate of 15% and a $5 million exemption ($10 million per family).

Reform the Alternative Minimum Tax: -$107 billion.

Senator McCain would reform the Alternative Minimum Tax by extending the current patch, indexing the exemption amount for inflation through 2013, and indexing it by inflation plus five% thereafter until it reaches $143,000. Over time, the AMT would be significantly reduced, though not eliminated, under this policy.

Double the Personal Exemption for Dependents: -$30 billion / -$15 billion.

Rather than allowing the dependent exemption to grow with inflation, as provided by current law, Senator McCain would increase the $3,500 exemption by $500 per year until it reaches $7,000, and thereafter index it for inflation. He would immediately double the exemption for families making under $50,000 a year, rather than phase in his change. The personal exemption would remain $3,500 and indexed by inflation, as under current law.

Reduce the Federal Corporate Income Tax Rate: -$68 billion / -$55 billion.

Senator McCain would lower the top corporate income tax rate from 35% to 25%. This would be phased in, with the top rate reduced to 30% in 2010 and 2011, to 28% in 2012 and 2013, to 26% in 2014, and to 25% thereafter. Senator McCain would also repeal the domestic production activities deduction, which would no longer be necessary under his proposal.

Allow Expensing: +$25 billion / -$15 billion.

Senator McCain would temporarily allow corporations to immediately deduct the cost of three- and five-year investments in equipment, rather than depreciating the costs over a longer time period. He would also disallow the interest deduction on expensed equipment. The policy would expire in 2013.

Reform the Research and Experimentation Tax Credit: -$13 billion.

The Research and Experimentation Tax Credit (commonly referred to as the R&E or R&D credit), which provided a 20% tax credit for qualified expenses, expired on Dec. 31, 2007. Senator McCain has proposed replacing it with a permanent tax credit worth 10% of all wages spent on research and development.

Eliminate Preferential Tax Treatment for Oil Companies: +$2 billion.

Senator McCain has called for the repeal and reform of a number of tax preferences for oil companies including expensing of exploration and development costs, and other tax credits and accounting advantages.

Close Corporate Tax Loopholes: +$30 billion.

Senator McCain has proposed cutting "corporate welfare," namely the preferential tax treatment of certain industries. Although he has not enumerated the specific parts of the tax code this would include, McCain's campaign has pointed to tax breaks for life insurance companies, credit unions, and exporters. It has also said it would repeal Last In, First Out (LIFO) accounting rules.

Create an Optional/Alternative Individual Income Tax System: $0.

Senator McCain has proposed an optional, alternative tax system with two rates and a single large standard deduction to replace most existing deductions, exclusions, and credits.

According to the McCain campaign, this alternative system would be designed to ensure revenue neutrality. On the other hand, outside experts think that because most taxpayers will choose the system in which they pay lower taxes, significant revenue would be lost.

Total Budget Effect of Tax Policies in 2013: -$417 billion to -$485 billion.

Health Care

Create a Refundable Health Insurance Tax Credit: -$288 billion/ -$364 billion.

Senator McCain would offer a $2,500 refundable tax credit for individuals ($5,000 for families) who purchase health insurance. Credit amounts exceeding premium costs could go into a health savings account. The net costs of the policy (cost of the new refundable credit minus savings from eliminating the tax exclusion for employer-provided health insurance) would decline over time.

Eliminate Tax Exclusion for Employer-Provided Health Insurance: +$201 billion/ +$274 billion.

Senator McCain's health insurance tax credit would replace the current exclusion that allows companies to offer health care benefits to employees free from taxation. Under the McCain plan, employer-provided health insurance benefits would be taxed as normal income for individual income tax purposes. Health insurance would not be subject to the payroll tax, however; and employers would continue to deduct health insurance coverage costs.

Expand Health Savings Accounts: -$1 billion / -$9 billion.

Senator McCain supports expanding health savings accounts, which allow people to save money, tax free, to finance health care costs.

Establish a "Guaranteed Access Plan": -$8 billion.

Senator McCain has said he would work with states to create institutions that would expand insurance access to high-risk or traditionally uninsurable individuals. Under this plan, state governments and nonprofit institutions would pool individuals who want coverage and contract with insurers for them, while offering limits on premiums.

Impose Higher Medicare Premiums for the Wealthy: +$2 billion.

Senator McCain supports charging higher premiums for wealthy individuals enrolled in the Medicare prescription drug program (Medicare Part D).

Reduce Overall Health Care Costs: +$40 billion.

Senator McCain has proposed a number of measures to slow the growth of health care costs, including the promotion of information technology in health care and the facilitation of national standards for measuring and recording treatments and outcomes. He would encourage more transparency within the health care system and more coordinated care and disease management. Additionally, among other measures, McCain supports legalizing prescription drug re-importation, reforming the medical malpractice liability system, and encouraging states to experiment with cost-cutting tools. He would also reform the Medicare and Medicaid payment systems to ensure that the programs do not pay for preventable medical errors or mismanagement, and he would reduce Medicare fraud.

Total Budget Effect of Health Care Policies in 2013: -$54 billion to -$65 billion.

Energy Policy

Implement a Cap-and-Trade System: +$5 billion.

Senator McCain supports the creation of a cap-and-trade system to limit greenhouse gas emissions. Some permits would be auctioned while others would be distributed freely to market actors. According to the Congressional Budget Office, if all permits were auctioned they could be worth between $50 billion and $300 billion annually by 2020. However, only a small portion of these permits is likely to be auctioned and we assume they would raise $5 billion. Whatever the revenue amount, according to the campaign, all revenues would be spent funding energy-related policies.

Invest in Green Technology: -$5 billion.

Senator McCain supports a number of initiatives to increase energy independence and expand clean energy technology. These include "clean coal technology," tax credits and prizes for the use and development of clean transportation technology, and the creation of 45 new nuclear power plants by 2030.

Total Budget Effect of Energy Policies in 2013: $0.

Other Spending/Savings

Offer Targeted Assistance to Older Workers: -$4 billion.

As part of a comprehensive reform that would add private Lost Earnings Buffer (LEB) accounts to the current unemployment system, Senator McCain would offer Lost Earnings Supplements for older workers who take lower-paying jobs. Workers over 55 years old would be eligible for the supplement and would be paid up to 50% of their lost earnings (up to $10,000) for two years.

Eliminate Earmarks +$35 billion

Senator McCain has promised to end earmarking, the practice that allows members of Congress to direct funds to a specific (and often local) project during the legislative process. He has promised to veto bills with earmarks in them, and to cut spending from earmarks already enacted.

Freeze Domestic Discretionary Spending: +$21 billion.

Senator McCain has proposed a one-year period during which all discretionary spending, except for certain military and veterans programs, would be held constant. During this year, the effectiveness of all government programs would be reviewed.

Fully Fund No Child Left Behind: $0 billion (current levels) $0/ -$13 billion (fully funded).

Senator McCain has called for full funding of No Child Left Behind. There has been disagreement within the campaign about whether the program would be funded at current levels, which would not increase the budget beyond the baseline, or whether the maximum amount of funds authorized for the program would be requested.

Increase the Size of the Military: -$10 billion.

Senator McCain has proposed increasing the size of the Army and the Marine Corps. We assume that he would continue to add the 65,000 soldiers and 27,000 Marines, currently being implemented.

Reduce the Troop Presence in Iraq -$5 billion

Senator McCain has suggested that the United States will be able to withdraw some of its troops from Iraq by 2013. We assume that he would reduce the total number of troops in Iraq and Afghanistan to 75,000 by 2013. This policy would cost money compared to the current baseline assumptions that do not fully fund the war.

Implement Unspecified Cuts to Balance the Budget: +$159 billion.

The campaign has said a McCain administration would reduce spending by enough to balance the budget by 2013. Although the campaign has not announced many specifics, it has stated that McCain would slow discretionary spending by cutting or ending nondefense and Pentagon procurements such as the airborne laser, Globemaster, Future Combat System and reduce mandatory spending by decreasing agricultural and ethanol subsidies and enacting other reforms. They would also conduct a review of government programs and propose a plan to modernize, streamline, consolidate, reprioritize or terminate those programs found to be redundant or underperforming.

Total Budget Effect of Other Spending/Savings Policies in 2013: +$183 billion to +$196 billion.

The candidate’s policies are broken into four categories: tax, health care, energy, and other spending/savings. To show the effect when programs are fully in place, estimates of budget effects are for 2013. Policies that would enlarge the deficit (or reduce the surplus) are shown as negative numbers, and those that would reduce the deficit (or increase the surplus) are shown as positive numbers.

Tax Policy

Extend Some of the 2001 and 2003 Tax Cuts: -$294 billion. Senator Obama supports renewing and making all of the major tax cuts enacted in 2001 and 2003 permanent for families making less than $250,000, which will otherwise expire at the end of 2010. The cuts include the four lowest marginal income tax rates, the expanded child tax credit, reduced marriage penalties, and various other provisions. In developing its proposals, the Obama campaign assumed for the purposes of its baseline that the rest of the 2001 and 2003 tax cuts would be renewed and then proposed reversing several of the cuts in order to pay for other proposals. This estimate is the cost of making all of the tax cuts permanent.

Increase Income Taxes on Higher Earners: +$48 billion. To pay for his health care plan, Senator Obama would allow the top two tax brackets of the individual income tax -- currently 33% and 35% -- to return to their pre-2001 levels of 36% and 39.6%, respectively. He also would allow Pease and PEP rules to be reinstated for those making over $250,000 a year, which would phase out certain tax benefits for these earners.

Raise Capital Gains and Dividends Taxes on Higher Earners: +$28 billion. Senator Obama would maintain the current capital gains rates and dividends rate of 0 and 15% on capital gains for families making $250,000 or less and create a new higher 20% bracket for those making more than $250,000.

Reinstate a Smaller Estate Tax: +$44 billion. Under current law, the estate tax will disappear completely in 2010 and reemerge in 2011 for all estates worth over $1 million with a top rate of 55%. Senator Obama would instead freeze the estate tax at its 2009 levels. This would create a permanent estate tax with a top rate of 45% and a $3.5 million exemption ($7 million per family).

Patch the Alternative Minimum Tax: -$106 billion. Senator Obama has not specified a plan to address the Alternative Minimum Tax, although he has supported efforts to fix the AMT in a “fiscally responsible manner” in the past. We assume that he would support continuing the current policy of providing annual patches to prevent middle class taxpayers from having to pay this tax.

Make the Research and Experimentation Tax Credit Permanent: -$10 billion. The Research and Experimentation Tax Credit (commonly referred to as the R&E or R&D credit), which provided a 20% tax credit for qualified research expenses, expired on December 31, 2007. Senator Obama would renew the credit and make it permanent.

Create a Universal Refundable Mortgage Credit: -$13 billion. Senator Obama would create a universal mortgage credit equal to 10% of interest payments for homeowners who do not itemize and therefore can’t take advantage of the current mortgage interest tax deduction. We assume the credit would be capped at $800 a year.

Create a “Making Work Pay” Tax Credit: -$72 billion. Senator Obama supports providing workers with a refundable tax credit equal to their share of the Social Security payroll tax (6.2% of payroll) on their first $8,100 of earnings. The credit would offer a maximum benefit of $500 per worker ($1,000 per family), would be indexed for inflation, and would be phased out for singles starting at $75,000 and for married couples starting at $150,000.

Eliminate Income Taxes for Many Seniors: -$7 billion. Senator Obama would exempt senior citizens making less than $50,000 from paying income taxes. The policy would be phased out above $50,000.

Expand the Earned Income Tax Credit: -$5 billion. Senator Obama supports increasing the number of individuals eligible for the EITC, as well as increasing the size of EITC benefits. He would change the rules so more working parents could receive the credit, increase benefits for parents who fulfill their child support obligations, increase benefits for families with three or more children, and reduce the EITC marriage penalty by increasing the phase-out threshold for joint filers.

Modify the Saver’s Credit and Implement Auto-Saving: -$21 billion. Senator Obama would make the Saver’s Credit refundable and increase it to cover 50% of qualified savings up to $500 for individuals ($1,000 for families making less than $75,000). The credit would be automatically deposited in an individual’s savings account. Senator Obama would also require that employers automatically enroll workers in company pension plans or IRAs, although employees could choose not to participate.

Create a New College Tax Credit: -$13 billion. Senator Obama would create a new “American Opportunity Tax Credit” and would integrate the HOPE and Lifetime Learning Credits so that individuals could not claim both credits simultaneously. The new credit would be refundable and offer a maximum benefit of $4,000. The American Opportunity Tax Credit would be contingent upon students completing 100 hours of community service.

Expand the Child and Dependent Care Tax Credit: -$3 billion. Senator Obama would make the CDCTC refundable and increase it to cover up to 50% of the first $3,000 of child or dependent care expenses ($6,000 for multiple children) rather than up to 35% as under current law. According to the Tax Policy Center, he would also double the threshold for qualifying for the maximum credit from $15,000 a year to $30,000 a year.

Tax Carried Interest as Earned Income: +$2 billion. Senator Obama would tax the income earned by partners for performing investment management services at normal income tax rates, instead of the current practice of taxing them at the long-term capital gains rate (typically 15%).

Close Tax Loopholes and Shelters: +$75 billion. Senator Obama would seek to reduce tax shelter abuses, close the tax gap between taxes owed and taxes paid, and eliminate many corporate loopholes and tax breaks for certain industries or special interests. In particular, he would eliminate tax breaks for gas and oil companies; close the so-called CEO pay loophole that allows companies to avoid taxation on stock options offered to highly paid executives; require better capital gains reporting; and go after income being sheltered overseas by putting pressure on tax haven countries and companies involved in tax sheltering, while altering certain multinational tax deductions. Additionally, the campaign has said that an Obama administration would look for other sources of new revenue.

Cut Corporate Taxes: -$13 billion. Senator Obama would use some of the revenue raised from closing corporate tax loopholes and increasing the capital gains rate to cut corporate taxes. Specifically, Senator Obama would eliminate capital gains taxation on investment in small and start-up firms. Additionally, he would lower corporate income tax rates for businesses that start or expand operations within the United States.

Increase the Future Payroll Tax on High Earners: 0. To bring additional revenue into the Social Security system, Senator Obama supports creating a new tax on workers earning more than $250,000 a year. This tax would take effect in 2018 or later with a rate of between 2% and 4% of payroll (split between employer and employee). It would supplement the current 12.4% Social Security payroll tax that is levied on the first $102,000 in wages.

Total Budget Effect of Tax Policies in 2013: -$360 billion.

Health Care Policy

Expand Health Care Coverage: -$65 billion (net of savings). Senator Obama’s health care plan would require large employers to offer insurance or to pay a tax and would separately mandate that all children be insured. Individuals would have the option of keeping their employer coverage, purchasing insurance from a national health insurance exchange, or opting into a public plan similar to Medicare. Medicaid and SCHIP would be expanded while individuals who did not qualify for these programs would receive an income-related federal subsidy to purchase insurance. Additionally, small businesses would receive tax credits to provide health insurance to their employees.

Reduce Overall Health Care Costs: $0 (savings included in costs). Senator Obama has proposed a number of measures to slow the growth of health care costs, including health care information technology, research on the comparative effectiveness of treatments, more transparency within the health care system, and the use of more coordinated care and disease management. He also supports a performance-based payment system, reforming medical malpractice insurance, and reforming Medicare including by eliminating subsidies to private Medicare Advantage plans. By expanding health insurance coverage, the campaign says they will be able to cut disproportionate share hospital (DSH) payments which currently go to hospitals that treat large numbers of uninsured individuals. All savings are included in the estimate of the coverage program.

Close the “Doughnut Hole” in Medicare Part D: -$43 billion. Under the standard Medicare prescription drug program, the government covers 75% of the cost of prescription drugs up to $2,510, does not cover any costs until total prescription drug spending reaches $5,726, and then covers 95% of costs. Senator Obama would close this coverage gap as part of a spending-neutral reform of Medicare (see below). If they were unable to raise the necessary savings, the Obama campaign has said they would only partially close the doughnut hole to ensure spending-neutrality.

Reduce Medicare Costs: +$43 billion. To finance the closing of the doughnut hole, Senator Obama would legalize the reimportation of certain prescription drugs and allow the federal government to negotiate Medicare Part D drug prices directly with pharmaceutical companies. He would also ban drug companies from paying generic producers to refrain from entering drug markets, while increasing the use of generics in public programs. The campaign has said they would undertake additional measures as necessary to fully pay for any expansions to Medicare Part D.

Total Budget Effect of Health Care Policies in 2013: -$65 billion.

Energy Policy

Implement a Cap-and-Trade System: +$100 billion. Senator Obama supports the creation of a cap-and-trade system to limit greenhouse gas emissions. All companies that emit greenhouse gases would be required to obtain permits auctioned by the government. According to the Congressional Budget Office, the permits could be worth between $50 billion and $300 billion annually by 2020. We assume $100 billion in revenues. Under the Obama plan, all revenues would be spent on energy-related initiatives or on rebates to individuals.

Provide Tax Rebates and Transition Assistance: -$85 billion. The majority of revenue raised under Senator Obama’s cap-and-trade system would be used for tax rebates and other transition relief initiatives designed to assuage the impact of higher energy prices on individual communities and consumers.

Invest in Green Technology: -$15 billion. Senator Obama would invest $150 billion over 10 years in the development and commercialization of clean energy technology. This money would be used on programs to double clean energy research, extend the production tax credit for five years and create a clean tech venture capital fund that would pair with existing investment funds to encourage the creation and development of clean energy solutions and bolster financial support for environmental innovation.

Total Budget Effect of Energy Policies in 2013: $0.

Other Spending/Savings

Increase Pre-K - 12 Education Spending: -$18 billion. Senator Obama supports a number of policy proposals related to education. They include investing $10 billion per year in developmental programs for children under the age of five, reforming No Child Left Behind, helping future teachers finance their education, and offering financial incentives to teachers who spend time mentoring students.

Create Infrastructure Reinvestment Bank: -$6 billion. Senator Obama has called for the creation of a national infrastructure reinvestment bank that would invest $60 billion over 10 years in highways, technology, and other infrastructure projects. Funds would go primarily to projects related to homeland security, improving the environment, and economic growth.

Increase Spending on Basic Research: -$15 billion. Senator Obama has proposed to increase funding for basic research in physical and life sciences, mathematics, and engineering at a rate that would double basic research budgets over the next decade. He would also invest $50 billion over five years in information technology.

Expand Support for Higher Education: -$9 billion. Senator Obama supports creating a Community College Partnership Program, increasing funds for college readiness programs and expanding Pell Grants. Senator Obama would increase the maximum size of the Pell Grant for low-income students by ensuring the grant keeps pace with inflation.

Reduce Erroneous Payments and Use Purchasing Cards: +$6 billion. Senator Obama would reduce the number of improper payments made by the federal government in programs such as Medicare, Medicaid, Earned Income Tax Credit, and Social Security. He would also expand the use of purchasing cards to standardize government purchasing while increasing the government’s negotiating power.

Reform Government Spending: +$17 billion. In order to finance his education plan, Senator Obama would reduce the practice of earmarking, which allows members of Congress to direct funds to a specific (and often local) project during the legislative process. Additionally, he would reform federal contracting procedures, reduce federal energy consumption, and would auction off surplus federal property.

Eliminate the Federal Education Loan Program: +$3 billion. Senator Obama would eliminate current subsidies and guarantees to private banks and lenders who offer student loans and increase funding to the current direct loan program. The savings would be used to fund his college tax credit.

Double Foreign Aid: -$25 billion. To reach the Millennium Development Goal of cutting extreme worldwide poverty in half by 2015, Senator Obama has proposed doubling the current U.S. foreign aid budget from $25 billion a year to $50 billion a year.

Increase the Size of the Military: -$20 billion. Senator Obama has proposed increasing the size of the Army and Marine Corps. More specifically, he has declared his support for the current policy of adding 65,000 soldiers and 27,000 Marines. He would also strengthen the National Guard and Military Reserves, build up special operations forces capacity, and invest in military infrastructure.

Initiate a Phased Withdraw from Iraq: +$55 billion. Senator Obama has said that he would begin bringing troops home immediately with the ultimate goal of having all combat troops out of Iraq within 16 months of his taking office. He has also said that he would keep some noncombatant troops in and near Iraq to protect U.S. embassies and diplomats, while carrying out targeted strikes on al-Qaeda. We assume that Obama would reduce the number of troops in Iraq and Afghanistan to 30,000 by 2010.

Implement Unspecified Cuts to Slow Spending: +$50 billion. The campaign has said an Obama administration would reduce wasteful spending and eliminate obsolete programs in all areas of the budget, while directing agencies to identify wasteful and inefficient programs for a total of $50 billion in savings. Although the campaign has not announced many specifics, it has stated that Obama would achieve the savings by identifying redundant and lower-priority programs and slowing their growth.

Total Budget Effect of Other Spending/Savings Policies in 2013: +$ 38 billion.