Obama, McCain, and Tax Progressivity

Obama, McCain, and Tax Progressivity June 12, 2008

The impeccable Urban Institute has undertaken a detailed analysis of the tax policy proposals puts forth by the two candidates. The bottom line is clear: McCain’s tax cuts would primarily benefit those with very high incomes, raising their after-tax income by more than twice the average of all households. In contrast, Obama’s tax cuts are geared to the lower and middle-income groups, and taxes increase on the richest. In sum, Obama’s plan is progressive in the sense that it lowers taxes at the bottom and raises at the top, while McCain’s is regressive, even compared with a system whereby the Bush tax cuts are made permanent.

Obama’s plan sees gains going to all but the top quintile, and the poorest get most. The bottom quintile would see their incomes rise by 5.5 percent, with more modest increases for the next three quintiles– and a 2 percent reduction in the after-tax income of the top quintile. The tax increases are dramatic for those at the very top: after-tax income falls by 8 percent for the top 1 percent, and 11.5 percent for the richest person in a thousand.

McCain, on the other hand, swings the other way. There are practically no gains whatsoever to the first three quintiles, while the fourth quintile receives an after-tax income boost of around 2 percent (much like Obama). But it’s the top quintile that does very well under McCain– instead of seeing their income fall by 2 percent, the McCain proposals would boost their income by 3 percent. And the richer the better: under the McCain proposals, the top 0.1 percent get 4.4 percent.

As I have noted before, we live in an era of rising inequality, witnessing levels of income disparity not seen since the gilded age. Since 1973, real median household income has only risen by by 16 percent, far less than productivity growth. And the entry of women into the labor force complicates this picture– men are actually no better off today than in 1973, and prime-age men (35-44) are 12 percent worse off.

Clearlty, this is an issue in Catholic social teaching. For a start, it emphasizes the importance of a living wage, a family wage. Granted, the structural trends that brought about this new gilded age were not caused by the tax code and cannot be fixed by the tax code– but it would be nice to at least nudge policy in the right direction instead of exacerbating these damaging trends.

Second, social equality– a fair sharing of resources between the classes– is itself a goal of Catholic social teaching. It is in accord with the principles of solidarity and a preferential option for the poor. In Quadragesimo Anno, Pope Pius XI wrote: “riches that economic-social developments constantly increase ought to be so distributed among individual persons and classes that the common advantage of all…. one class is forbidden to exclude the other from sharing in the benefits.” Blessed Pope John XXIII in Mater Et Magistra argued that “the economic prosperity of a nation is not so much its total assets in terms of wealth and property, as the equitable division and distribution of this wealth.”

This is certainly an issue in this election. It is hard to see how McCain’s “preferential option for the rich” is in line with Catholic social teaching, especially in current circumstances.

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