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The two men vying to occupy the White House for the next four years say they want to reform our current complicated tax system. But until that can be achieved, President Barack Obama and Mitt Romney are proposing tweaks to the existing tax code.Both candidates offer the American electorate only general outlines of their major tax proposals.
The Obama campaign’s tax website touches on broad concepts such as raising tax rates on higher-income individuals and closing loopholes on millionaires and billionaires. As for more specifics, the president has elaborated on tax changes he supports in his annual budgets and State of the Union addresses, as well as in the corporate tax reform proposal issued by the U.S. Treasury earlier this year.
Romney also lists on his campaign website some general tax changes he favours, such as income tax rate reductions and maintaining the current tax treatment of investments. But the Republican candidate’s plan also is light on details.
Romney’s selection of Rep. Paul Ryan, R-Wis., to be the Republican vice presidential nominee raised some tax watchers’ eyebrows. As House Budget Committee chairman, Ryan created a plan that calls for just two individual income tax rates (10 per cent and 25 per cent) and no investment taxes for anyone regardless of income. However, Romney says he, not the new vice presidential candidate, is in charge of the campaign’s fiscal proposals.
And while Obama makes no apologies for wanting to collect more money from some taxpayers, Romney insists that any tax changes should be revenue-neutral, meaning that if some taxes are hiked, others should be lowered to counter the increase. The Romney camp, however, has not provided any detail about what tax deductions or credits it would target to achieve federal revenue neutrality.
Here’s a look at Obama’s and Romney’s positions on major tax areas affecting individual and business taxpayers. Not surprisingly, the two men’s tax plans generally reflect the differences between their two political parties.
Tax proposals from the presidential candidates
Tax provisions Current law* Barack Obama’s
tax proposals Mitt Romney’s
tax proposals Ordinary individual income tax ratesSix tax rates:
10 per cent
15 per cent
25 per cent
28 per cent
33 per cent
35 per cent
Six tax rates with top rate applied to adjusted gross income of $200,000 for individuals, $250,000 for families:
10 per cent
15 per cent
25 per cent
28 per cent
36 per cent
39.6 per cent
A 20 per cent reduction of the current six tax rates:
8 per cent
12 per cent
20 per cent
22.4 per cent
26.4 per cent
28 per cent
Interest, dividend, capital gainsCertain qualified dividends taxed at capital gains rates, which are zero per cent for taxpayers in the 10 per cent and 15 per cent tax brackets and 15 per cent for all other taxpayers.
General interest earnings, i.e., on such investments as CDs, are taxed at ordinary tax rates.
Carried interest, i.e., the share of profits that private equity and hedge fund partners receive as compensation, is taxed at capital gains rates.
Increase capital gains tax rate to 20 per cent on high-earners.
Impose the so-called Buffett rule, i.e., a minimum 30 per cent tax on high-earners.
Dividends taxed as ordinary income for individuals with adjusted gross income of $200,000 ($250,000 for married couples filing jointly).
Carried interest taxed as ordinary income.
Eliminate taxes on investment income for taxpayers with adjusted gross income of less than $200,000.
Retain 15 per cent tax on interest, dividends and capital gains for all other taxpayers.
Estate tax Estates worth up to $5.12 million are not taxed, with estates worth more than that taxed at 35 per cent. Exempt estates worth up to $3.5 million and increase estate tax rate to 45 per cent. Repeal estate tax permanently. This would enable estates worth any amount to pass from one party to the next with no tax. Alternative minimum tax (AMT) Separate tax rates of 26 per cent and 28 per cent that apply to certain taxpayers who make more than an excluded threshold amount. Replace the AMT with the so-called Buffett rule, which would require people making more than $1 million a year to pay at least 30 per cent of investment income in taxes. Repeal the AMT altogether. Corporate tax rate The corporate tax rate is 35 per cent. The proposed rate is 28 per cent, except for manufacturers, which would face a 25 per cent rate. The proposed rate is 25 per cent. International taxes This is generally a worldwide system where all income, regardless of where earned, is taxed. Institute a minimum tax on overseas profits and other international proposals. Institute a territorial system that would tax U.S.-source profits of multinational corporations but would exempt profits earned abroad. Research and development (R&D) There is a 20 per cent credit for qualified R&D expenditures in excess of a base amount; 14 per cent simplified credit available to eligible taxpayers. This R&D credit expired Dec. 31, 2011. Reinstate the current business R&D credit that expired Dec. 31, 2011. Strengthen (no details provided) and make permanent an R&D credit. Energy A renewable electricity production tax credit for, in part, wind, solar, geothermal energy production. A variety of tax credits and deductions for oil and gas operations.Make the tax credit for production of renewable electricity permanent and refundable.
Eliminate tax preferences for fossil fuels.
Streamline energy production permitting. Focus on traditional energy resources rather than green technologies that typically are too expensive to compete in the marketplace. *Many of these provisions are set to expire at the end of 2012.
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This story was originally published by Bankrate.