Tax

A familiar call for change.

Tax platforms of the presidential candidates

September 2008
 A familiar call for change
Tax platforms of the presidential candidates

With the campaign for the White House

now in full stride, Republican presidential
nominee Sen. John McCain of Arizona and
Democratic nominee Sen. Barack Obama
of Illinois are positioning themselves
as candidates who will change the way
Washington works. But while each has
indicated that changing the tax code will
play a key role in advancing his agenda, it is
not readily apparent that either one intends
to advance significant tax reforms during his
first 100 days or even his first year in office.
Three modern presidents have come into office with fully developed tax plans at the center
of their campaigns that they then advanced early in their respective administrations: Ronald
Reagan in 1981, Bill Clinton in 1993, and George W. Bush in 2001. In contrast, McCain and
Obama have not moved immediate action on taxes to the very forefront of their campaigns.
Thus far, they have addressed tax policy only in broad strokes: the tax proposals they discuss
in their speeches and position papers are often lacking in technical details and have been
modified throughout the campaign. Moreover, both camps are discussing health care and
energy with at least equal fervor, which suggests that broad-based tax proposals may not
lead the agenda next year no matter who wins the election. Indeed, we may not see any fully
fleshed-out proposals until after the election is over and the new elected president sends his
first tax and spending package to Congress next February.
That said, a number of factors should drive the next president as well as the next Congress to
address taxes in the coming two years:
• First, nearly all of the 2001 and 2003 tax cuts will expire at the end of 2010, leaving
decisionmakers with the choice of extending part or all of those tax cuts or allowing them
to lapse. (See the table that follows this report for a list of expiring provisions.)
• Second, the individual alternative minimum tax (AMT) will continue to capture millions of
taxpayers and force them into a system that was originally implemented to ensure that only
the wealthiest taxpayers did not escape tax liability.
• Third, the estate tax will drop to a rate of zero effective for 2010, but return to pre-2001
rates of up to 55 percent with a $1 million exemption in 2011 if not reformed in some
manner.
• Finally, if the tax law is extended to preserve the rules that existed in 2007, projected
budget deficits over the next 10 years would exceed $7.2 trillion (according to
Congressional Budget Office estimates). Projected spending increases on Social Security,
Medicare, and Medicaid due to the retirement of the Baby Boom generation also will strain
the revenue sources of the federal government for years to come.
With all this in mind, even though we cannot predict who will occupy the White House in
2009 or exactly where tax policy will fit into the next president’s agenda, it is still possible
to offer some insights on significant tax proposals that could come out of a McCain or an
Obama administration and how they might be received in Congress.



The sources for our analysis
This document relies on a variety of
sources, including the McCain and
Obama campaign Web sites and analyses
from the Congressional Budget Office
and congressional Joint Committee on
Taxation. We also have relied heavily on
extensive reporting on, and analysis by,
the nonpartisan Tax Policy Center, which
published “An Updated Analysis of the 2008
Presidential Candidates’ Tax Plans.” The most
current version of the analysis is available at
www.taxpolicycenter.org. We relied on the
September 12, 2008, update.
Is fundamental tax reform
on the horizon?
Neither candidate is discussing proposals to
fundamentally reform or replace the current
tax system. McCain, however, has suggested
allowing individuals to determine their taxes
under an optional alternative two-rate tax
system with a generous standard deduction
and increased personal exemption. Obama
offers to provide standard-deduction filers
with prefilled-in tax forms that they can
verify and submit.
In the past, tax reform has occurred after
a substantial period of consensus building
about the kinds of tax to impose and the
level of revenue that is required. We do not
see such an emerging consensus. Reform
likely cannot become a reality until Congress
and a president begin to agree on how to
deal with the rapid growth of entitlement
spending and other issues.
A familiar call for change
Tax platforms of the presidential candidates
Following party orthodoxies
Both McCain and Obama have definite ideas on the direction in which they would take the
income tax system. But despite their emphasis on change, their proposals as articulated thus far
in the campaign reflect the very traditional debate over how progressive the tax system should
be — that is, how the burden should be distributed between the middle class and the wealthy.
McCain’s tax plan would take an orthodox Republican approach by maintaining the 2001
and 2003 Bush tax cuts, increasing the estate tax exemption while decreasing the tax rate,
increasing the personal dependent exemption for individual taxpayers, and lowering corporate
tax rates. McCain also has stated that he will oppose any new taxes as a means to fund his
proposals. This robust plan represents a significant commitment to slashing government
spending if deficits are to be controlled. According to an analysis by the nonpartisan Tax Policy
Center (TPC), the McCain tax plan would result in federal revenues equal to 17.6 percent of
gross domestic product (GDP). For the 2007 through 2009 fiscal years, revenues are projected
to average 18.4 percent of GDP and spending 20.8 percent.
Obama follows Democratic orthodoxy by proposing higher taxes on the wealthy (which his
campaign defines as joint filers with annual incomes above $250,000 and single filers with
incomes above $200,000) to pay for tax cuts and benefits for the lower and middle classes.
Like the McCain plan, Obama’s tax plan seems to imply a commitment to significant spending
reductions. According to the TPC analysis, the Obama tax plan would result in federal
revenues equal to 18.2 percent of GDP.
Both candidates are committed, in general terms, to closing largely unspecified business and
other perceived loopholes. Interestingly, neither is calling for a wholesale replacement of the
current income tax system or the enactment of a new additional tax, such as a national retail
sales tax or a value-added tax.
The big picture
The McCain and Obama tax plans can be analyzed in three large pieces: individual income tax
proposals, estate tax proposals, and business income tax proposals.
With respect to individual income taxes, both candidates would reduce collections below
the aggregate amounts collected under present law, but they would do so very differently.
McCain would make virtually all of the Bush tax cuts permanent and extend further tax relief
to families with children or other dependents. In the aggregate, Obama would, based on TPC
numbers, collect less in individual income taxes than McCain, but he would do so by raising
taxes on joint filers earning more than $250,000 and individuals earning more than $200,000
while preserving the Bush tax cuts for taxpayers falling below that income level and adding an
array of specially targeted tax incentives and refundable tax-relief provisions.
Both candidates would create an estate tax system that exempts all but a tiny fraction of
estates from tax. Taxable estates would face very different burdens due to a lower exemption
and higher tax rate on the remaining value. Over a 10-year period, estate tax collections under
the Obama plan would exceed collections under the McCain plan by about $300 billion.
In terms of total revenue collections, the most dramatic difference between the two
candidates may be in their treatment of corporate taxes. McCain would provide a significant
net reduction in corporate tax burdens through a reduced corporate tax rate, but would offset
some of that reduction through the elimination of “corporate welfare” provisions in the tax
code. Obama has expressed support for lowering the corporate rate as well, but proposes
to raise significantly higher revenue through specific revenue offsets and other unidentified
“loophole” closers.


The key question:
Who should pay?
The focus of the policy disagreement
between McCain and Obama is less on the
question of how much individual income tax
the government should collect and more on
who should pay that tax. McCain generally
would hold the line on individual taxes.
Obama would raise them on the highest-
income taxpayers and cut taxes for college
students, wage earners, and senior citizens.
These differences in approach will shape tax
policy in the next administration long after
the sound bites of the campaigns have been
forgotten.
Estate tax proposals compared
As reported in The Wall Street Journal,
Deloitte has calculated the federal estate
tax under the McCain and Obama plans for
hypothetical estates of $5 million and $10
million.
A $5 million estate would pay a tax of
$675,000 under the Obama plan, but
nothing under McCain’s plan.
For a $10 million estate, the McCain plan
would result in a $2.2 million savings
compared to the Obama plan.
Payroll taxes and Social Security
solvency
Most would agree that Social Security’s
long-term fiscal stability must be addressed.
Agreement on how to do that will be
difficult to find.
Some see options such as increasing payroll
taxes or means-testing benefits as changing
Social Security from an insurance program
to a welfare program or as unfairly shifting
the cost of Social Security to high-income
individuals who already bear a heavier
income tax burden. Others believe that
extending retirement ages or reducing
inflation adjustments will disproportionately
hurt poorer workers. Still others fear that
privatization options would endanger the
system’s solvency.
A familiar call for change
Tax platforms of the presidential candidates
Individual tax proposals
Upper-income taxpayers have the most to gain under McCain’s plan and the most to lose
under Obama’s. Both candidates have pledged to maintain the Bush tax cuts for middle- and
low-income individuals. However, McCain would go one step further than Obama by keeping
the top individual tax rate of 35 percent and keeping the top rate on capital gains and
qualified dividends at 15 percent.
Obama has indicated that he would reinstate the top two individual income tax rates at their
pre-2001 levels — 39.6 and 36 percent — and increase the capital gains rate to 20 percent
for taxpayers in those same tax brackets. His campaign advisers have also indicated that the
dividend rate would continue to be tied to the capital gains rate (as it is now). Obama also
would:
• Reinstate the personal exemption phaseout and itemized deduction limitation, which are
scheduled to be fully phased out starting in 2010 (phaseout thresholds would be $250,000
for joint filers and $200,000 for others). In effect, the Obama plan would raise the top
income tax rate, considering these phaseouts, to 40.79 percent from its 2008 level of 35.35
percent.
• Eliminate all income taxes on senior citizens earning below $50,000.
• Provide a “Making Work Pay” tax credit for individuals earning below $75,000 a year.
Estate tax — Since the estate tax is currently scheduled to be repealed for one year during
2010 and then revert to pre-Bush rates and exemption levels in 2011, many expect that
Congress will address estate tax reform next year. Both McCain and Obama have proposed
adopting a reformed permanent estate tax system.
McCain has proposed a 15 percent estate tax on the roughly 0.2 percent of estates valued at
more than $5 million ($10 million per couple).
Obama would make permanent the 2009 estate tax structure, which taxes the roughly 0.3
percent of estates valued above $3.5 million per person ($7 million per couple) at rates
ranging from 18 to 45 percent.
AMT — At last count, the government estimated that about 4 million individual taxpayers
owed the AMT for 2007, and even more had to at least determine that they did not owe it.
While 4 million is still a relatively small number compared to the entire population of roughly
140 million individual taxpayers in 2007, it is not when compared to the 140,000 taxpayers
who owed AMT in 1987. Moreover, statistics on the number of taxpayers with AMT liability
are misleading, because in recent years Congress has approved an annual fix or “patch” — in
the form of a one-year increase in the AMT exemption amounts — to keep the AMT in check.
The most recent patch Congress adopted — for 2007 — has already expired. If Congress fails
to adopt another patch for 2008, the number of AMT taxpayers will balloon to more than 24
million.
Proposals to eliminate the AMT are politically popular but prohibitively expensive. Thus, both
candidates call for simply keeping the AMT in check by extending the 2007 AMT patch and
indexing it for inflation.
Social Security payroll tax increase — Although the need for Social Security reform is often
discussed, long-term solutions are not apparent. After 2017, Social Security expenditures are
expected to exceed employer and employee payroll tax collections. Add to this the fact that by
2025, 31 percent of U.S. adults will be at or above retirement age, and it becomes clear that
preservation of the Social Security trust fund surplus and future solvency of the system are at
risk.
To address these long-term needs, Obama has said that he would propose an additional
payroll tax to take effect 10 years or more in the future. This tax would be at a rate of
between 2 and 4 percent (split between employer and employee) and would apply to income
above $250,000.
McCain has not proposed a payroll tax increase.
As used in this document, “Deloitte” means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for
a detailed description of the legal structure of Deloitte LLP and its subsidiaries.


Business revenue raisers:
Not-so-easy money
Both candidates’ tax plans depend heavily
on raising revenue from “corporate welfare”
and similar measures. Congress and various
administrations have targeted these kinds of
initiatives in numerous pieces of legislation,
including the 1981, 1986, and 1993 tax
acts, and in meeting pay-as-you-go budget
requirements over the last decade. We have
assembled a list of the most significant
current business-related tax increase
proposals in a table that follows this report.
For the incoming administration, the hard
reality will be that many of these proposals
have not been enacted in the past because
they are highly controversial and could have
a significant impact on business. In addition,
even if somehow all of these were to be
enacted, the revenue gained still could well
fall short of the targets set by the campaigns.
Income tax system’s role in
health care reform
The federal income tax treatment of health
care-related savings and benefits is one of
the most significant differences between
present law and a theoretically “ideal” or
“comprehensive” income tax system.
Any consideration of health care reform
plans that seek to reduce the number of
uninsured individuals likely will trigger a
debate over whether, or the extent to which,
the income tax system should be used to
influence health care and health insurance
choices.
A familiar call for change
Tax platforms of the presidential candidates
Business tax proposals
The U.S. corporate tax rate of 35 percent — 39 percent when including state and local
corporate income taxes — is second only to Japan among the 30 members of the
Organisation for Economic Co-operation and Development (OECD) and well above the nearly
27 percent average corporate income tax rate of OECD member nations. The trend toward
lower corporate tax rates internationally has fueled arguments here that a corporate rate
reduction is essential to keeping the United States competitive in the global marketplace. To
that end, the two candidates have discussed in broad terms their desire to lower the corporate
rate.
McCain has pledged to gradually reduce this rate to 25 percent by 2015, implement
immediate expensing for three- and five-year property through 2013, and enact a permanent
research and development (R&D) credit calculated on the basis of wages spent on R&D.
McCain’s corporate tax rate reduction would be paid for in part by repealing the Section 199
deduction for qualified production activities; eliminating certain oil and gas tax incentives;
and by additional, largely unspecified proposals to eliminate “corporate welfare” that would
raise $30 billion a year in revenue. Taken together, the McCain proposals, according to TPC
numbers, would reduce taxes on corporations by $450 billion over 10 years.
Obama has not provided as much detail regarding his business tax reform plan. He has
called for the corporate tax rate to be lowered for companies that expand or start operations
domestically, but has not specified an exact rate or the manner in which such reductions
would be financed. He has proposed permanent extension of the R&D and renewable energy
credits. Additionally, he has indicated that he would eliminate all capital gains taxes on small-
business investments and for start-ups.
Obama has also called for increasing taxes through $76 billion a year of “revenue raisers”
such as eliminating oil and gas tax incentives, requiring information reporting on securities
transactions, codifying the economic substance doctrine, modifying Subpart F deferral to “end
incentives for companies to ship jobs overseas,” closing the “offshore pension loophole,”
taxing publicly traded partnerships as C corporations, taxing carried interests as ordinary
income, and closing loopholes in “corporate tax deductibility of CEO pay.” The net effect
of these policies according to TPC numbers is an increase in business-related taxes of $770
billion.
Health care tax proposals
McCain opposes federally mandated health insurance coverage, favoring a plan to eliminate
a perceived bias created by employer-provided health insurance deductions. Specifically,
McCain would offer every taxpayer a $2,500 credit ($5,000 for families) to be used toward
the purchase of health insurance. Those currently enrolled in coverage through their employer
could elect to forfeit their exclusion and take the credit or continue under their employer’s
plan.
Although Obama is not in favor of universal health coverage, he does want all children to
be covered. As part of financing this plan, he would require employers that do not offer or
make a meaningful contribution to the cost of health care for their employees to contribute
a percentage of payroll toward the costs of the national plan. Small businesses would be
exempt from this requirement and would receive a new Small Business Health Tax Credit
intended to reduce their health care costs.


Dealing with uncertainty
Retroactive tax changes
Both candidates are proposing at least some
tax increases. That reality leads inevitably to
two questions: “When?” and “Could those
changes be retroactive?”
Constitutionally, Congress could pass
legislation in 2009 or 2010 and make it
apply to the entire year. It has done so in the
past — for example, with the rate increase in
1993. But politically, retroactive changes are
often viewed as unfair. Retroactivity generally
is limited to two circumstances. The first is
when Congress can reasonably conclude that
taxpayers were aware that the increase was
coming because it was widely discussed in
campaigns or official discussions. The second
is when taxpayers have engaged in conduct
that Congress sees as abusive. In these
cases, fairness is found in retroactivity on
the grounds that the taxpayer “should have
known better.”
Capital gains rates
Capital gains rates could be raised from 15
percent to 20 percent next year. If they are
not, the same risk may exist for 2010 or
2011.
Some have suggested that taxpayers should
sell gain assets to lock in capital gains at
the lower rate. Investors will want to weigh
both the tax and economic considerations
involved in such a decision. If the asset does
not fit an individual’s investment needs, then
selling will make sense apart from the tax
considerations. But if the asset would simply
be repurchased or replaced with a similar
investment, then three factors will affect the
decision.
The first is transaction costs. It would not
make sense, for example, to incur a 6
percent commission to save a 5 percent tax.
The second is the amount of gain relative to
the asset’s value. As a general rule, locking
in gains and paying tax early is more likely to
make sense for assets with low basis.
The third is the loss of earnings on the funds
used to pay tax.
A familiar call for change
Tax platforms of the presidential candidates
Possible vehicles for tax law changes in the
next administration
Although the next president is unlikely to come into office with a comprehensive tax plan as
an immediate legislative priority, a number of triggers could turn the country’s attention to
taxes and tax policy in the first two years of the next administration.
Economic stimulus — The state of the nation’s economy has held the center of the
political stage for most of 2008. If the economy continues to struggle at the beginning of
the next administration and Congress, then Washington may once again turn to proposals
for economic stimulus. This could prompt early consideration of various tax measures that
are seen as stimulative, ranging from targeted investment incentives to broader-based, but
temporary, tax reductions. Such a discussion could also lead to early consideration of either
delayed or compliance-related revenue offsets that would mitigate the long-term impact of
further tax reductions. By its nature, however, the rapid consideration of a further stimulus bill
would create little opportunity for the discussion of entirely new or more dramatic changes in
tax law. Moreover, economic stimulus legislation could take a different form in 2009 than it
did in 2008, focusing less on tax rebates and incentives and more on infrastructure, relief to
states, and expansion of unemployment benefits.
Energy — High gasoline prices, increased heating and cooling bills, and mounting calls
for offshore drilling have turned energy policy into a high priority for lawmakers. If the
current Congress leaves Washington to hit the campaign trail without taking action on key
energy issues, including extension of popular alternative energy tax incentives, then the next
Congress is likely to take up energy early in 2009. As has been the case in 2008, extending or
expanding energy tax incentives will bring with it a discussion of tax increases in some industry
sectors and of other potential revenue offsets.
Expiration of Bush tax cuts — The looming expiration of the Bush tax cuts after 2010 would
seem to portend an automatic tax increase, but as evidenced by proposals coming out of the
McCain and Obama campaigns, it is likely that a substantial portion of those cuts will survive
into the next decade. A political consensus appears to support continuation of the Bush tax
cuts for the middle class. Even with respect to high-income individuals, few would support a
top tax rate significantly above the roughly 40 percent that was in place before the Bush cuts
became law. In the context of extending the tax cuts, Democrats can be expected to offer a
wide array of changes that would increase taxes on high-income taxpayers while cutting taxes
on families, students, and other targeted groups.
AMT reform — The current individual AMT system is unsustainable and, if left unreformed,
would rapidly become the tax base for the vast majority of middle-class taxpayers over the next
decade. The Joint Committee on Taxation estimates that by 2010 more than 85 percent of
taxpayers with incomes of $100,000, but less than $200,000, would pay AMT. Unfortunately,
the cost of repealing the AMT would be prohibitive: a TPC analysis estimates $1.8 trillion over
10 years, assuming extension of the Bush tax cuts. The AMT will have to be dealt with either in
the context of extending the Bush tax cuts or, in the short term, through further stopgap relief.
Entitlement reform — The aging of the Baby Boom generation will put an increasing strain
on the Social Security and Medicare programs. That fact, plus mounting federal debt and an
ever-expanding federal bureaucracy, could compel significant tax and entitlement reforms
during the next administration. Most observers believe that, as with past efforts to address
chronic budget shortfalls, the solution will require a combination of spending and tax actions.

 A familiar call for change
Tax platforms of the presidential candidates

Dealing with uncertainty Prospects for action

Deferred compensation If Obama is sworn in as president in 2009 and immediately moves forward with his health
High-income taxpayers concerned with the care initiative as promised, there is a real possibility that major tax legislation will be delayed
risk that top individual tax rates may increase into 2010 or even 2011. That does not take tax entirely off the table, however, since Congress
for 2009 or 2010 will want to consider and the next president will be looking at more than $60 billion to extend expiring tax
whether they should accelerate recognition
provisions benefiting individuals and businesses as well as the annual AMT patch that will cost
of deferred compensation.
a projected $65 billion to $70 billion a year to maintain.
The economic analysis of whether to
accelerate deferred compensation may Whether, and the extent to which, a Democratic Congress might act on business tax issues
be easier than the analysis involved in will depend on many factors. Most important, if the economy and markets continue in
evaluating capital gains. In many cases, a turmoil, a number of members may be reluctant to chance any action that could be seen as
taxpayer will incur little or no transaction prolonging a downturn.
costs in accelerating compensation and all
of the compensation is taxable. In addition, For his part, Obama has indicated that if the economy continues to slump into next year, he
once compensation is realized, the after-tax would not move to increase taxes early in his administration.
earnings can be invested in alternatives that
may generate capital gains or other tax- If the task of fashioning tax policy falls to McCain working with a Congress that most believe
favored income. will not be terribly different from the current one, then prospects for business taxpayers will
have improved, but they will nonetheless need to remain vigilant. A Democratic House would
Of course, the available rates of return inside
continue to advance a range of revenue-raising options, and McCain has already indicated
the compensation plan and on alternative
investments outside the plan must be that he would raise in excess of $30 billion a year from unidentified business tax provisions
considered, as well as nontax factors. in the context of cutting corporate tax rates. One can imagine scenarios in which a McCain
White House, anxious to extend the Bush tax cuts, would eventually cut a deal on taxes that
A note of caution: If accelerating includes provisions adverse to specific business interests.
compensation will not generate additional
cash, then the cost of using alternative cash
resources to pay the additional tax must
be considered. Additionally, any analysis of
accelerating deferred compensation must
also take into account existing tax rules
that impose an additional income tax of 20
percent (or more) on certain impermissible
changes in the timing of compensation
payments.


 A familiar call for change
Tax platforms of the presidential candidates

Dealing with uncertainty Bottom line: both come up short

Retirement savings A combination of tax cuts, a faltering economy, and two overseas wars have erased the
Taxpayers sometimes wonder whether budget surplus inherited by the Bush administration in 2001. Testimony from budget experts
they should skip making retirement plan has made it clear that a policy that maintains the Bush tax cuts but does little to change
contributions when it appears that tax rates federal spending will be unsustainable. Yet both McCain and Obama would maintain
will be rising.
individual income tax receipts at levels comparable to those reached under President Bush’s
A decision to forego contributions to a policy. McCain’s tax plan seems to add to the challenge by proposing net cuts in corporate tax
qualified retirement plan should never be collections, while the Obama plan calls for significant, but potentially unrealistic, business tax
made lightly. Sound retirement planning increases.
involves a range of economic and tax
considerations, but most important, it One thing is clear: neither candidate is planning to address our looming fiscal crisis by asking
involves consistent discipline to save. for net tax increases. In the short term at least, the promise will be, as it has been, that we will
Contributions to qualified retirement plans, control spending. It also means that whenever a new tax cut or spending priority is identified
such as IRAs, Roth IRAs, 401(k)s, and within a constrained federal budget, both the new administration and the new Congress
profit sharing plans, are subject to annual will be tempted to turn their gaze toward high-income and high-net-worth individuals and
limitations. This means that a skipped businesses as likely sources for revenue offsets.
contribution cannot be made later and the
potential for tax-favored earning on that It is also wise to consider that neither candidate will get all that he wants in the tax arena. As
amount is lost. is the case when any president offers a proposal, Congress holds the legislative pen and thus
has significant influence in shaping that which is enacted into law. In the past, even presidents
In a traditional IRA, 401(k), or profit sharing
plan, the economic benefit of accruing working with their own party in Congress have found their tax plans reshaped by concerns
tax-exempt earnings on contributions over that members have for the impact of proposals on constituents and by the necessity of
the long term will typically outweigh higher forging sufficiently broad support in the Senate to avoid procedural roadblocks.
tax benefits that might be in place when
withdrawals are made. For 401(k)s with
a matching feature, the advantage of an
employer contribution adds further value.
A distribution would have to be taxed at a
significantly higher rate upon withdrawal at
retirement for the benefit created by earning
tax-exempt income in a tax-deferred account
over the long term to be eliminated. Also,
many taxpayers can expect to be in a lower
tax bracket in retirement even if top rates are
raised.
With respect to Roth IRAs, contributions
are made with after-tax income and the
distributions received after retirement are
tax free. This means that any future tax rate
changes should not affect the value of the
account.
Business tax changes
Businesses may face the most difficulty in
dealing with the tax uncertainty that will
come with a new administration.
This difficulty stems from two sources.
First, both candidates have committed
to substantial and sometimes yet-to-be-
identified revenue raisers that will affect
business. Second, revenue raisers do not
need to await a major tax bill. They could
arise early in 2009 as revenue offsets for
other legislation.
Businesses will need to focus on what is
happening in Washington so that they
can effectively manage the risks and
opportunities that arise when tax laws
change. That includes observing the entire
legislative process to ensure that new tax
law changes do not unnecessarily catch
businesses by surprise.



Tax policy scorecard: How the presidential
candidates stack up
John McCain
Business tax incentives1
• Phase down corporate tax rate from 35 to 25 percent over six years by
2015 (30 percent in 2010–2011, 28 percent in 2012–2013, 26 percent
in 2014, and 25 percent thereafter)
• Make R&D tax credit permanent and equal to 10 percent of wages
spent on research and development
• Allow first-year deduction of 3- and 5-year equipment purchases
through 2013 (deny interest deductions for expensed equipment)
Business-related revenue raisers2
• Raise $30 billion a year by “eliminating corporate welfare”
• Repeal Section 199 domestic production activities deduction
• Eliminate certain oil and gas tax incentives
Bush tax cuts
• Make most of the 2001 and 2003 Bush tax cuts permanent (excluding
estate tax repeal)
Capital gains and dividends
• Maintain current tax rate of 15 percent
A familiar call for change
Tax platforms of the presidential candidates
Barack Obama
• Make R&D tax credit permanent
• Lower corporate tax rate for companies that expand or start operations
in the United States
• Raise $76 billion a year in largely unspecified revenue offsets
• Eliminate oil and gas tax incentives
• Require information reporting of securities transactions
• Codify the economic substance doctrine
• Reform international tax rules, including modifying Subpart F deferral
to “end incentive for companies to ship jobs overseas” and closing the
“offshore pension loophole”
• Establish an international tax haven “watch list” of countries that do
not share information returns with the United States
• Tax publicly traded partnerships as C corporations
• Tax carried interest as ordinary income
• Close loopholes in “corporate tax deductibility of CEO pay”
• Reinstate pre-2001 top individual tax rates of 39.6 and 36 percent for
families making more than $250,000 ($200,000 for singles)
• Make permanent certain Bush tax cuts, including $1,000 child credit;
marriage penalty relief; and 10, 15, 25, and 28 percent individual tax rates
• Restore PEP/Pease (personal exemption phaseout and itemized deduction
limitation) phaseouts at an increased threshold of $250,000 for joint filers
($200,000 for singles). Index threshold amounts for inflation
• Raise capital gains and dividend rates to 20 percent for families earning
more than $250,000 ($200,000 for singles)
• Eliminate all capital gains taxes on start-ups and small businesses to
encourage innovation

 A familiar call for change
Tax platforms of the presidential candidates

Tax policy scorecard: How the presidential candidates stack up continued

John McCain Barack Obama
New individual tax cut proposals
• Offer an alternative tax system with two rates, a generous standard • Eliminate all income taxes for seniors (age 65 and over) earning less
deduction, and an increased personal exemption than $50,000 a year
• Increase exemption amount for dependents to $7,000 (phased-in • Create a refundable “Making Work Pay Credit” equal to 6.2 percent
schedule of $500 each year from 2010 to 2016). Families with $50,000 of up to $8,100 in earnings for those making less than $75,000 a year
or less in income could take full $7,000 exemption beginning in 2009 (maximum $500 credit per spouse)
• Create a refundable 10 percent “Universal Mortgage Credit” for
nonitemizers (up to a maximum of $800)
• Replace existing Hope credit with a refundable “American Opportunity
Tax Credit,” providing up to $4,000 per year for qualifying higher
education expenses
• Expand the earned income tax credit program
• Mandate automatic employee enrollment in 401(k) plans where
employers offer retirement plans. Require employers that do not offer
retirement plans to provide employees with access to automatic IRAs
• Expand Savers Credit and make it refundable. For working families
earning less than $75,000, government would match $500 of first
$1,000 saved and deposit into account
• Increase child care dependent maximum credit rate to 50 percent and
increase phaseout threshold to $30,000
• Create an emergency energy rebate of $500 ($1,000 for families) to be
funded by a windfall profits tax on oil companies
• Provide taxpayers who take standard deduction prefilled tax forms to
verify, sign, and return
Estate and gift tax
• Increase exemption level to $5 million per person ($10 million per • Increase exemption level to $3.5 million per person ($7 million per
couple) and lower top rate to 15 percent couple) and increase top rate to 45 percent
Individual alternative minimum tax
• Extend the 2007 AMT “patch” exemption levels and index for inflation3 • Extend and index 2007 patch4
Energy
• Supports a $5,000 tax credit for purchase of a zero-emission vehicle • Make permanent the Section 45 renewable production tax credit
(vehicles not currently available to general public) • Impose windfall profits tax on oil and gas companies
• Provide a $7,000 tax credit for purchase of advanced technology
vehicles
• Provide $4 billion in retooling tax credits and loan guarantees for
domestic auto plants and parts manufacturers to produce new fuel-
efficient cars
Health care
• Replace tax exclusion for employer-sponsored insurance with refundable • Provide a refundable tax credit to small businesses that provide health
credit of $2,500 for individuals ($5,000 per family) to purchase health insurance to employees to claim up to 50 percent on premiums
insurance
Technology reform
• Ban Internet taxation • Provide true broadband to every community through new tax and loan
• Prohibit new cell phone taxes incentives
Payroll tax
• No proposal • Retain existing payroll tax on first $102,000 of income (indexed for
inflation). Exempt income from $102,000 to $250,000, then reinstate
a 2 to 4 percent payroll tax (combined employee and employer) on
income above $250,000. According to Obama, proposal would not take
effect for at least 10 years
Information in this table reflects candidates’ positions as of September 15, 2008. Unless otherwise noted, all information is from McCain’s and
Obama’s personal campaign Web sites.
1
A Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans, The Tax Policy Center, June 20, 2008.
2
Ibid.
3
Ibid.
4
Ibid.


 A familiar call for change
Tax platforms of the presidential candidates

Revenue-raising options
Both of the candidates have called for revenue raisers, many of which are largely unspecified,
that could have a significant effect on business taxation. The table below shows the major
revenue offsets that are either:
• Pending in active House or Senate tax legislation (that is, vetted by the House Ways and
Means Committee or considered on the Senate floor) or
• Were included in (1) two corporate tax reform white papers issued by the Treasury
Department in July and December 2007, (2) comprehensive tax reform legislation
introduced by House Ways and Means Chairman Charles Rangel, or (3) President Bush’s FY
2009 budget submission to Congress.
These provisions represent that which may be considered by the next president as ways to pay
for their tax cut proposals.
Provisions that are in bold have been proposed in some form by one or both of the
candidates.

Available corporate revenue raisers

Active bill Treasury FY09 Bush
in House or corporate tax Rangel tax budget
Proposals Senate reform reform package
General business
Reduce the dividends-received deduction 
Repeal the R&D credit 
Repeal the Section 199 deduction  
Repeal the last-in, first out (LIFO) accounting method 
Repeal the “lower of cost or market” inventory valuation method 
Increase the amortization period for intangible assets to 20 years 
Repeal the low-income housing credit 
Repeal special source rules for inventory property 
Deny exclusion of interest on state and local bonds 
Deny exclusion of interest on life insurance savings 
International tax
Deny deductions on unrepatriated controlled foreign corporation (CFC) income 
Deny deferral of income from CFCs 
Repeal or delay worldwide interest allocation election  
Limit treaty benefits on payments by foreign multinationals incorporated in tax  
havens
Limit related-party interest deductions under Section 163(j) 
End Domestic International Sales Corporation (DISC) provisions 
General compliance
Codification of the economic substance doctrine  
Require stock basis reporting by brokers on sales of securities   
Require information reporting on payments to corporations 
Increase information return penalties 

10
 A familiar call for change
Tax platforms of the presidential candidates

Continued
Available corporate revenue raisers
Active bill Treasury FY09 Bush
in House or corporate tax Rangel tax budget
Proposals Senate reform reform package
Pass-through entities
Treat S corporation and limited partnership employees in service businesses as 
receiving self-employment income
Require hedge fund managers to recognize income from investment  
management services using offshore tax haven corporations as it accrues
Tax publicly traded partnerships as corporations 
Tax income from carried interests as ordinary income  
Change employee stock ownership plan rules  
Energy
Repeal Section 199 for oil and gas companies 
Repeal or modify oil and gas incentives: 
• Amortization of geological and geophysical (G&G) costs 
• 15-year natural gas distribution lines 
• 7-year natural gas gathering lines
Oil- and gas-specific revenue raisers: 
• 13 percent excise tax imposed on: oil or gas extracted from the Outer
Continental Shelf in the Gulf of Mexico, finished gasoline on its
removal from the refinery or entry into the United States, and fuel
removed by refineries and terminals in trade zones

• Modify application of the foreign tax credit rules to foreign oil and gas
extraction income (FOGEI) and foreign oil-related income (FORI)

11
 A familiar call for change
Tax platforms of the presidential candidates

What happens to the Bush tax cuts

after 2010?
• Individual Tax Rate Reductions — The 10 percent bracket expires; the 25, 28, 33, and 35
percent brackets increase to 28, 31, 36, and 39.6 percent. Lower rates for long-term capital
gains increase from 0 and 15 percent to 10 and 20 percent. Qualified dividend income is
taxed as ordinary income, from 15 to 39.6 percent.
• Itemized Deductions and Personal Exemptions — Phaseout of overall limitation on itemized
deductions and phaseout of personal exemptions are restored.
• Tax Benefits Relating to Children — Child tax credit drops from $1,000 to $500; extension
of and increased credit for adoption expenses and increased exclusion for employer-
provided adoption assistance lapses; and dependent care credit decreases due to lower
caps for eligible expenses, lower maximum credit rate, and modified phasedown of credit.
• Marriage Penalty Relief — Standard deduction for married couples filing a joint return
drops from 200 percent of standard deduction for singles to 167 percent of standard
deduction for singles. The 15 percent bracket breakpoint for married couples filing a joint
return drops from 200 percent to 167 percent of same breakpoint for singles. Increased
earned income tax credit for married couples expires.
• Affordable Education — Range of direct tax and savings incentives, including increased
contribution limits for education IRAs, expanded student loan interest deduction, and
extension of employee exclusion for employer-provided educational assistance expires.
• Estate Tax — Estate tax restored, with top tax rate of 55 percent and a unified credit
exemption amount of $1 million; stepped-up basis regime reinstated.
Note: This list summarizes the major provisions of the so-called “Bush tax cuts.” It is not
intended to be comprehensive and omits some provisions originally enacted as part of the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that may have been
addressed separately in later years. For example, the Pension Protection Act of 2006 made
permanent all EGTRRA-related pension provisions, and Congress has repeatedly legislated
changes to certain provisions through annual extensions of expired tax provisions.

12
 Contacts
Clint Stretch
Managing Principal, Tax Policy
Deloitte Tax LLP
+1 202 879 4935
cstretch@deloitte.com
Jeff Kummer
Director of Tax Policy
Deloitte Tax LLP
+1 202 220 2148
jkummer@deloitte.com
www.deloitte.com/us/tax

Acknowledgments
“A familiar call for change” was prepared by the Tax Policy Group of Deloitte Tax LLP in
Washington, D.C., under the direction of Clint Stretch, managing principal, tax policy, and Jeff
Kummer, director of tax policy.
The text was prepared by: Donna Edwards, Tom Louthan, and Bart Massey, senior managers;
Jon Almeras, Michael DeHoff, Michelle Johns, Kathy Loden, and Elizabeth Magin, managers;
and Joel Deuth and Brendan Mahoney, tax consultants.
This publication does not constitute tax, legal, or other advice from Deloitte Tax LLP, which
assumes no responsibility with respect to assessing or advising the reader as to tax, legal, or
other consequences arising from the reader’s particular situation.

Copyright © 2008 Deloitte Development LLC. All rights reserved. DCS505983