Huge price tag may thwart tax cut plans

A central question of the debate is whether the tax system should become more or less “progressive.” That is, should those with higher incomes pay a bigger share of their earnings in taxes? Despite the Bush administrations tax cuts to the wealthy, the system has been moving in that direction since 2001, according to Villarreal of the NCPA.

“The wealthy pay a greater share of the tax burden than they did in 2000, and lower-income people paid less of it than they ever had,” she said. “The bottom 50 percent now pays less than 3 percent of all federal taxes, where the top 1 percent pays almost 40 percent.”

Regardless of the philosophical differences, the two plans share one major drawback: Neither candidate has offered details on how to pay for the promised tax relief.

Even if no changes are made to the tax code, deficits over the next 10 years will add roughly $2.3 trillion to the national debt, based on projections by the Congressional Budget Office. And that was before figuring in the impact of a potentially deep recession and the costs of a $700  billion package passed by Congress to rescue the financial services industry.  

Changes proposed by Obama’s campaign advisors would mean the national debt would grow by  $5.7 trillion over 10 years, while proposals spelled out by McCain’s campaign would add $7.4 trillion, according to the Tax Policy Center. If you add up proposals made in stump speeches, the total 10-year debt increase comes to $5.4 trillion for Obama and $10.9 trillion for McCain, according to the center’s analysis.

“The biggest problem is that we can’t afford either one of them,” said McIntyre of Citizens for Tax Justice.

To close the spending gap created if all of McCain’s tax cuts were enacted, Williams, of the Tax Policy Center, estimates you would need to cut total federal spending by 25 percent. If you take entitlements like Social Security and Medicare off the table, you’d need to cut the remaining budget in half. And if you left the defense budget untouched, you’d run out of places to cut, he said.

“Basically, to believe that there are enough spending cuts that are going to happen to offset the size of the tax cuts, you’ve got to believe in the tooth fairy and Santa Claus and the Easter bunny,” said Williams.

These deficit projections don’t take into account the potential impact of a deep recession on tax receipts. Nor do they account for further spending by the government to bail out the financial system.

If McCain is elected, he will likely face strong opposition to his tax plan from a Democratically controlled Congress. If Obama is elected, he will also face opposition to cutting taxes without offsetting spending cuts; deficit hawks on both sides of the aisle already have expressed concerns about further increases in the national debt.

All of which means the tax proposals are just a starting point in what will be a long and hard-fought process once the new president is inaugurated. Neither plan will likely survive intact, no matter who is elected, according to Williams.

“I think the odds are very low,” he said.

Also in msnbc.com business Your Career: Married to the job, and each other Answer Desk: Qualifying for more jobless benefits Venza sorta-crossover is Toyota’s latest mistake ConsumerMan: Chinese drywall remains a big threat   Video: Nervous retailers begin Christmas countdown

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

Commercial real estate bust looms NYT: Ex-homeowners forced into shelters Red Tape: Fees, not loans, help banks recover Recession ends in 79 metro areas Economists: The Great Recession is over, but ... Profit pressures could stall stock market rally NYT: Obama aides act to fix safety net Job losses overshadow recovery signs Survey: CEOs still not ready to hire, spend Fed likely to continue emergency aid programs Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: