Sunday, September 07, 2008

Mankiw's thoughts on candidates' tax proposals

Greg Mankiw... idol...hero...? Always clear and to the point in his writing, gives a different take on Obama's tax plan in his monthly NY Times column today. I color the part that stood out to me.

(Obama) has not been coy about wanting to use the tax code to redistribute income more aggressively....But for dividend income, Senator Obama has proposed only a modest increase in the top tax rate, to 20 percent from 15 percent. That is, the personal income tax would continue to tax dividends at a far lower rate than ordinary income...

Senator John McCain wants to maintain the current tax rate of 15 percent on dividends (while cutting the corporate tax), but it is a good bet that if Senator McCain is elected president, while Congress remains Democratic, Congress won’t give the Republican president what he wants. They would instead let the Bush tax cuts expire, returning the dividend tax for high-income taxpayers to about 40 percent.

By contrast, if Mr. Obama is elected, Congressional Democrats will be less likely to balk at his proposed 20 percent dividend tax rate and thus embarrass the new president from their own party.

This leads to one of the great ironies of the political season. On the issue of dividend taxation, Barack Obama may be the candidate with the best chance of preserving George Bush’s legacy.

Dude. Worth noting that Obama has previously proposed higher taxes on dividends, but his advisers talked him down to 20%. This has made his proposal much more palatable to many economists.

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