Mankiw with an insightful piece in today’s NYT. He begins by arguing eloquently for lower taxes on corporate dividends. I couldn’t agree more.
But the interesting bit is that essentially, Mankiw thinks that McCain’s tax plan will never be implemented, so it’s not a real plan. Therefore, electing McCain will ensure that the Bush tax cuts expire in 2010 and we go back to the pre-2000 tax regime. Obama’s plan, on the other hand, dials back some, but not all, of the Bush tax cuts. Therefore, his presidency actually stands a higher likelihood of lower taxes than McCain’s.
I like the logic.
Key excerpts below:
Four years later, however, Senator Obama enters the picture with, apparently, a different point of view. He has not been coy about wanting to use the tax code to redistribute income more aggressively. He has proposed modest tax cuts (about $1,000) for numerous middle-class Americans, cuts to be financed by much higher taxes on the richest few percent of the population. When all of Senator Obama’s proposed tax increases on the rich are added up, the top marginal rate on wage income would be nearly 50 percent.
But for dividend income, Senator Obama has proposed only a modest increase in the top tax rate, to 20 percent from 15 percent. That is, the personal income tax would continue to tax dividends at a far lower rate than ordinary income. This decision must surprise many of his Congressional supporters. But it should be making President Bush smile.
In light of Senator Obama’s stand, the politics of dividend taxation may take some surprising twists. Senator John McCain wants to maintain the current tax rate of 15 percent on dividends (while cutting the corporate tax), but it is a good bet that if Senator McCain is elected president, while Congress remains Democratic, Congress won’t give the Republican president what he wants. They would instead let the Bush tax cuts expire, returning the dividend tax for high-income taxpayers to about 40 percent.
By contrast, if Mr. Obama is elected, Congressional Democrats will be less likely to balk at his proposed 20 percent dividend tax rate and thus embarrass the new president from their own party.
