Figuring out which candidate will be better for your family's finances isn't all that complicated in some elections. You can look at the tax rates each candidate is proposing for people in your bracket, and perhaps some perks he'd like to throw your way, and that's most of your answer right there.
This won't be one of those races.
For a start, taxes are a hazy issue. The principles of the two sides are clear enough: President Barack Obama wants to raise taxes for the wealthy. Mitt Romney is proposing to slash rates. Yet Romney's sweeping but unspecified tax reforms make calculating your personal bottom line hard. And with the federal debt now above $11 trillion, neither candidates' tax policies may be sustainable over time.
Health care is another wildcard. Romney is promising to repeal the Affordable Care Act, the law that by 2022 is projected to cover 30 million people who would otherwise be uninsured. The impact of that on you depends largely on whether you feel secure in the coverage you already have. But Romney, especially with his pick of Paul Ryan as a running mate, has kindled another debate over health care that directly affects almost every American. The 2012 election has become a fight over the future of Medicare.
Finally, the choice between Obama and Romney comes down to very different ideas of what's needed to make the economy grow enough so that everybody prospers.
This is the first of a three-part series that looks at where the candidates stand on key pocketbook issues -- taxes, Medicare and economic growth -- why their promises may be hard to keep and why in this year in particular, it's tough to tell whether any proposed policy changes will leave you better off than you are today.
What's at stake: Today's low tax rates are set to expire in 2013, and the Democrats and Republicans agree on one point. Both sides are promising not to let that happen for most people.
"Obama wants to keep most of the Bush-era tax cuts," notes Allen Sinai of the forecasting firm Decision Economics. But while Romney says he'll deliver even more cuts, the President wants to raise rates on income above $250,000 or so. The further you are above Obama's $250,000 line in the sand, the better Romney's plan looks.
For Americans in the broad middle, comparisons are harder to make. Tax rates are only part of the equation; you also need to know how much of your income those rates will be applied to.
The current tax code is a maze of special breaks that put some income off-limits to the IRS; together they're worth over $800 billion a year in forgone tax revenue. Both candidates say they want to clean up the code and claw back some of that money.
The question is: How much of it will come from you?
The promise: After making sure today's low tax rates don't expire, Romney says he would work to reduce every single tax rate by one-fifth.
If your current tax bracket is 28%, your marginal tax rate on the last dollar earned would drop to 22.4%. The portion of ordinary income taxed at 25% would be taxed at 20%, the dollars taxed at 15% would go to 12%, and so on.
There's more. For married couples earning less than $200,000 (and singles earning below $100,000), Romney would eliminate taxes on savings and investments. No taxes on dividends or interest. None on capital gains. It's the equivalent of creating a Roth IRA with no contribution cap.
These cuts would spill a barrel of red ink all over an already crimson federal budget, even with the spending cuts Romney proposes. So he would make up for lost revenue with a major reform that limited tax breaks.
The catch: The nominee has said very little about which breaks would be on the chopping block. Many such provisions are highly popular, including three of the biggest: the mortgage-interest and charitable deductions, and the tax-free treatment of employer-provided health insurance.
The potential impact: Based only on the rate cuts and other items Romney has been specific about, the nonpartisan Tax Policy Center has concluded that for a household earning between $75,000 and $100,000, the average savings would be $2,000, or a 2.7% increase in your after-tax income. (That's relative to today's tax policy; the cuts are larger if you assume the expiration of the Bush-era tax rates.)
Those earning between $100,000 and $200,000 would get a cut of $4,000, bumping up take-home pay by an average of 3.6%. People earning above $500,000 would get a roughly 10% increase in after-tax earnings.
Those numbers don't include other tax reforms, though, and that's where things get sticky. The number crunchers at the Tax Policy Center have argued that to keep revenue level, Romney would have to close off so many tax breaks that some in the middle class could end up paying more in taxes.
Romney has vehemently criticized TPC's analysis. "Governor Romney will not raise taxes on the middle class," says Jonathan Burks, the campaign's deputy policy director.
It's unlikely that Romney is secretly planning a big net tax hike, but he is up against daunting math. If he wins, he may have to cut rates less than he's promising to.
The promise: The President's tax plan is easier to quantify, if only because the White House has had to spell it out in budget proposals.
Obama would extend most of today's rates but would raise the top two marginal rates on couples with adjusted gross incomes of more than $250,000, or more than $200,000 for singles. Today's 33% rate would climb to 36%, and the 35% rate would rise to 39.6%.
Obama also wants to raise investment taxes on high earners to a top rate of 20% on long-term capital gains; their dividends could be taxed as ordinary income. This is on top of hikes scheduled to kick in in 2013 as part of health reform. Medicare taxes on earnings above $250,000 would rise by 0.9% on ordinary income and 3.8% on investment income.
Similar to Romney, Obama wants to broaden the amount of income that's taxed. His main way of doing this essentially boils down to limiting the value of your itemized deductions if you're a very high earner. You'll only be entitled to the same write-off someone in the 28% bracket enjoys.
The President also wants new deals that benefit people lower on the income scale, including making permanent a $2,500 college tuition tax-credit program that expires this year.
The catch: If you are a high earner, there's no "catch." Obama is straight-up proposing to raise your taxes. For everybody else, the important question is whether the promise to keep taxes low is sustainable.
For one thing, that promise makes simplifying the maddeningly complex tax code harder. "Every time he proposes a tax increase, Obama has to figure out how it's going to affect people under $250,000," says the Tax Policy Center's Roberton Williams.
And looking past the next decade, middle-class tax hikes may be needed to close the budget gap, especially given the higher level of government spending Democrats envision.
"At least the election will be over in November," says Diane Lim Rogers, chief economist at the Concord Coalition, which advocates fiscal responsibility. If he wins, Obama "might be less sensitive about campaign promises he made before his first term."
The potential impact: For most, Obama's plan barely changes anything.
For a couple earning between $75,000 and $100,000, taxes would nudge up an average of $45, according to TPC. Between $100,000 and $200,000, they would rise by $219. But those earning between $500,000 and $1 million would see a real difference: $25,000. Those above $1 million would see their after-tax income cut by almost 9%.
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