The Budget According to McCain: Part II

The TPC projects that 32.4 million taxpayers will pay the AMT in 2010. As the chart shows, 46.6 percent of them will earn between $100,000 and $200,000 that year. Those with higher incomes pay more of the tax. For instance, nearly 22 percent of AMT taxpayers in 2010 will make between $75,000 and $100,000, but they'll pay 7.7 percent of AMT taxes. Those making $200k to $500k represent just 15 percent of all AMT taxpayers, but they pay nearly 40 percent of all AMT taxes.

McCain also fails to mention that repealing the AMT costs the government a lot of money in lost revenues. According to the TPC, nixing the AMT would cost more than $850 billion over 10 years, if the Bush tax cuts expire as scheduled. If the tax cuts are extended, eliminating the AMT would cost $1.6 trillion over 10 years.

Doing away with the AMT would certainly be a tax cut for wealthy individuals – and others affected by the tax. As for whether it rightly can be called a "middle-class tax cut," as McCain says, we'll let you be the judge. We've written before about how the majority of Americans consider themselves to be middle class.

Speaking of Those Bush Tax Cuts...
The senator also repeated his opposition to letting Bush's tax cuts expire, a reversal of his previous position on the cuts:

McCain (April 15): By allowing many of the current low tax rates to expire, [Democrats] would impose – overnight – the single largest tax increase since the Second World War. Among supporters of a tax increase are Senators Obama and Clinton. Both promise big "change." And a trillion dollars in new taxes over the next decade would certainly fit that description.

Actually, there's nothing "new" about most of these taxes. As we've noted before, Bush's major 2001 and 2003 tax cuts are set to expire at the end of 2010. It's a bit misleading to say that not changing the current law would be enacting a tax hike.

Both Sens. Obama and Clinton have said they would extend some of the Bush tax cuts but allow those that apply to people making more than $250,000 a year to expire. (Just 2 percent of U.S. households are projected to earn more than $250,000 next year, according to the TPC.) While there's some guesswork about how their policy pronouncements would play out, the TPC has calculated that under a scenario like the one the Democratic contenders have suggested, Americans would pay $1.1 trillion more in income and estate taxes over 10 years than they would if all 2001-2006 tax cuts were extended and the estate tax was repealed permanently. Put another way, that means that extending all of the reductions and eliminating the estate tax would lower government revenues by about $1.1 trillion more than the Democratic proposal. To be fair, McCain has said he wouldn't eliminate the estate tax, but raise the exemption and cut the rate.

McCain also calls the Democratic plan to let some of the Bush cuts expire "the single largest tax increase since the Second World War." That's true when measured in inflation-adjusted dollars, a comparison that a U.S. Treasury study calls "the second best measure." Since McCain said the increase would happen "overnight," we looked at the effect in the first year of the tax changes. The TPC found that taxpayers would pay an additional $103.3 billion in 2011, the first year a Democratic plan would be implemented. In inflation-adjusted dollars, that would be the largest single-year tax increase since WWII.

But most economists prefer to measure tax changes as a percentage of gross domestic product, which takes into account changes in the size of the overall U.S. economy. The Congressional Budget Office projects the GDP will be $16.7 trillion in 2011, which means the tax change would be six-tenths of 1 percent of GDP. By that measure, this plan would be the fifth-largest increase enacted since 1943. Looking at the effect of tax increases as an average of the first two years, this one would be the third largest since 1968.

McCain's Supply-Side Myth
McCain says that not all of his tax cuts will cost the government money. He continues to repeat the suspect claim that cutting the capital gains tax rate will actually increase government revenue.