Tax Foundation Fact-Check Attempts to Clarify Presidential Candidates’ Tax Policies Before Final Debate Focusing on Economic Issues

Washington, DC - With John McCain and Barack Obama debating for the final time tonight, and with both campaigns misleading the American public on each other’s tax proposals, the Tax Foundation is fact-checking two important tax issues before the debate: health care and small businesses.

Tax Foundation Senior Economist Gerald Prante chides both campaigns for misleading statements on McCain’s plan to replace the current tax exclusion for employer-provided health insurance with a new refundable health tax credit for each tax return -- $2,500 for singles, $5,000 for a couple.

“Gov. Sarah Palin claimed that the plan was budget neutral when, in fact, the McCain plan would be a large tax cut, roughly $1.3-to-$1.4 trillion over ten years,” Prante explains. “That tax cut figure may surprise people who believed Sen. Joe Biden’s statements that falsely called it the largest tax increase ever on the middle class. In fact, the Urban-Brookings Tax Policy Center estimates that Sen. McCain’s health tax credit would actually be a better deal for the middle-income (as a group) than Sen. Obama’s health plan for each of the next ten years.”

Prante also criticizes both campaigns for half-truths involving how Obama’s tax increases (most notably in the top two income tax brackets) would affect small businesses.

“Sen. McCain is overstating how much small business income would be affected by Sen. Obama’s tax plan. He was technically incorrect when he said that Sen. Obama would raise taxes on over 50 percent of small business income,” says Prante. “While tax returns with small business income that have some of their income taxed at the top two marginal rates would pay more, making about 56 percent of small business income, even among those businesses, much of their business income is being taxed at lower rates currently in law that would not change under Sen. Obama’s tax plan.”

“While Sen. Obama is technically correct to point out that only a small fraction of small businesses would be hit by his tax hikes, it’s not a relevant statistic,” Prante continues. “If one assumes taxes on small business activity are especially important, we need to answer the question, ‘How much would each candidate change the taxation of business-source income?’ And the answer to that question is that Sen. Obama’s tax hike would not be minor.”

Prante’s fact-check can be found at http://www.taxfoundation.org/blog/show/23773.html