Arlen Specter, a long-time U.S. Senator for Pennsylvania who recently switched from the Republican party to the Democratic party, lost his primary battle on Tuesday against Representative Joe Sestak.

Since 1995, Senator Specter introduced legislation to create a federal “flat tax” in every session of Congress, including this session.  This single-rate tax would replace the existing progressive personal income tax, as well as the corporate income tax and estate tax.

A recent report from Citizens for Tax Justice found that Specter's proposal would cut taxes for the richest five percent of taxpayers and raise taxes for everyone else.

The Specter plan was based on the “Flat Tax,” first proposed in a 1983 book by Robert Hall and Alvin Rabushka. The Flat-Tax authors wrote that it “will be a tremendous boon to the economic elite” and also admitted that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Sestak will go on to face Republican Pat Toomey, a former Representative and a former president of the right-wing Club for Growth.

Charges that Progressive Taxes Are "Socialism" Fail to Rally Support for Candidate McCain

Senator Barack Obama, who ran for president partly on a platform of ending George W. Bush's policies of cutting taxes for the wealthiest Americans, will be our new president starting January 20, 2009. He will have the support of a House of Representatives and Senate led by opponents of the Bush tax cuts.

His opponent, Senator John McCain, tried several times to frame the tax debate in a way that would lead average Americans to support tax cuts for the very wealthiest taxpayers. None of these attempts succeeded. At one point, the McCain campaign tried to get the public to pay more attention to Obama's vote for a non-binding budget resolution than Obama's actual tax plan. Later, a McCain surrogate argued that allowing the expiration of tax cuts for the richest 1.4 million taxpayers would be a tax increase on 23 million business owners. Near the end, McCain made an argument implying that the EITC, and really any progressive income tax, was socialism. Americans were not impressed with these arguments.

The 2008 election has important lessons for lawmakers regarding taxes. Arguments that taxes must be lowered for even the richest Americans simply do not work. Americans don't buy it. Nor do Americans buy it when proponents of tax cuts attempt to blur the details about who would benefit the most. There has always been polling that shows Americans do not support any and all tax cuts, but it took an election to make this real for many lawmakers.

The Path Ahead

Some people may speculate about whether the new President will muster the support needed to enact the proposals dear to them. We also feel this uncertainty, but it is mitigated by the crucial fact that the Bush tax cuts expire at the end of 2010. To put it a different way, if Congress simply does nothing, we will return to the tax policies in effect during the Clinton years, when the economy performed better than it does now, and when Americans were generally more positive about the direction of the country. That would be fine with us.

We know that Congress is not likely to do nothing. Congress, with President Obama's leadership, may enact tax cuts, including extending the Bush tax cuts for those who are not rich. (Since such a gigantic share of the Bush tax cuts currently goes to the rich, Obama's proposal will lose much less revenue than would candidate McCain's proposal to extend them for even the richest families.) And Congress is likely to act on at least some of President Obama's proposals to enact brand new tax cuts for low- and middle-income Americans.

But those lawmakers who insist on extending the Bush tax cuts for the even the richest Americans have no cards left to play. Their cherished handouts for the rich expire in a couple years and the new president is not likely to sign any bill that extends this party for the most privileged.

Of course, a great many details must be worked out. Obama wants to repeal the Bush tax cuts before they expire for the very richest families, and some lawmakers will dig in their heels to oppose this. Another question is the extent to which new tax cuts will be paid for. While most analysts agree that balancing the budget is not a priority during a severe economic downturn, we certainly hope that Congress will not enact huge, permanent tax cuts without replacing most of the revenue -- revenue needed to fund health care initiatives and other investments that have been short-changed during the Bush administration. There are ways that Congress can raise revenue that go beyond what is included in Obama's tax plan, and we will be making these suggestions to the new administration. And of course there are some tax cuts that Obama supports that would benefit the wealthy -- like a partial extension of the Bush tax cuts for dividends and estates -- and we're going to have an interesting conversation about that.

But the most salient fact is that the surreal era of leaders telling us that taxes must be cut most dramatically for the wealthy is over. This is a sea change. We may have trouble explaining to future generations how such a bizarre ideology ever took hold. But we will have no trouble explaining that on Tuesday Americans looked at the long list of problems facing this country and decided that cutting taxes for the rich should not be considered a priority.

For eight years we have had a White House fixated on tax cuts for the rich, at the expense of all other priorities. Now, the millions of Americans who lack health insurance or who are underinsured, the newly unemployed, the families losing their homes, and Americans serving their nation in the armed forces all know that their struggles are finally back at the top of the agenda in Washington.

New Report from Citizens for Tax Justice

A new report from Citizens for Tax Justice examines hypothetical households that are representative of different income groups to determine how they would fare under the tax plans proposed by the presidential candidates The report calculates the income tax liability of each hypothetical household under the tax plans and explains how and why the plans would affect them differently.

We find that our hypothetical households in the low- and middle-income groups would receive a larger tax cut under Obama's plan than under McCain's plan. Our hypothetical households in the top one percent would have a tax increase that would be fairly small (as a percentage of their income) under Obama's tax plan, but they would receive breathtaking tax cuts exceeding $270,000 under McCain's plan.

While presidential candidate John McCain has promised to make permanent the Bush income tax cuts for all Americans, his opponent, Barack Obama, promises to make them permanent for almost all Americans. A new analysis from Citizens for Tax Justice shows that only a small percentage of the taxpayers in each state would lose a portion of the Bush income tax cuts if Obama's plan is enacted. For these very rich taxpayers, Obama would repeal most of the Bush income tax cuts before their expiration date at the end of 2010. For everyone else -- for 97.5 percent of taxpayers nationally -- all of these tax cuts would be made permanent.

Obama proposes to make all of the Bush income tax cuts permanent for married couples with adjusted gross income (AGI) below $250,000 and unmarried taxpayers with AGI below $200,000.

Nationally, we find that only 2.5 percent of taxpayers will fall above the $250,000/$200,000 AGI threshold in 2009. The state with the largest percentage of taxpayers above this threshold is Connecticut (5.1 percent) and the state with the lowest is West Virginia (1.0 percent).

"Senator Obama wants to extend the Bush income tax cuts for 97.5 percent of taxpayers, and then enact more tax cuts for middle-income families," said CTJ director Robert McIntyre. "Obama even wants to extend a portion of the Bush income tax cuts for that richest 2.5 percent of taxpayers. Senator McCain defines a 'painful tax increase' as any plan that does not continue Bush's policy of giving huge tax cuts to these very richest taxpayers and having future generations of average Americans pick up the tab."

When the Earned Income Tax Credit was expanded in the Tax Reform Act of 1986, President Reagan, who signed the bill into law, called the EITC "the best anti-poverty, the best pro-family, the best job-creation measure to come out of Congress."

The EITC provides a tax credit to very low-income working families. The credit can exceed federal income tax liability, meaning that some very low-income families actually receive a check from the IRS. Since pretty much all working people pay federal payroll taxes (and also some federal excise taxes like the gasoline tax) even if they don't owe income taxes, the EITC seemed like a justifiable break for struggling families.

Leaders of both parties agreed, as did President Reagan. That's as close to a consensus as anyone finds in Washington. It seemed this was one sort of tax cut that everyone supported.

Until now. Presidential candidate John McCain, who often claims to emulate Ronald Reagan, has lately argued that tax breaks exceeding income tax liability are "welfare," and has even suggested that they are socialism. While McCain's views are not entirely clear (since his own health care plan includes a refundable tax credit that would also benefit people without income tax liability) it's difficult to square his hostility towards Obama's proposed refundable tax credits with his tributes to the president who supported similar policies. As a short paper from CTJ explains, under McCain's new logic, even George W. Bush is a socialist.

Pinning down where Senator McCain stands on taxes has never been easy. He originally opposed the Bush tax cuts, saying. "I don't believe the wealthiest 10% of Americans should get 60% of the tax breaks. I think the lowest 10% should get the breaks."

The financial collapse and the economic downturn of the past months begs the question of whether the economic policies of the Bush administration will be repudiated. Supply-side economics, the ideology that has driven the economic agenda of President Bush, has survived for years despite its complete failure in practice. For example, some anti-tax lawmakers and activists now claim that the answer to the economic crisis is... more tax cuts for investors. But now that we have seen two presidents over the last thirty years run up massive budget deficits through supply-side tax cuts that did not seem to make the economy any stronger, there is reason to think that politicians may finally start to see the failures of this ideology.

The Supply-Side Theory

This issue of the Tax Justice Digest explores supply-side economics, which is generally the idea that policies, particularly tax cuts for investment or for those who invest, can change incentives to invest in a way that will yield huge increases in economic growth. Most incredibly of all, this resulting economic growth is often argued to result in so much new tax revenue that the tax cut can be cost-free or can even lead to increased revenues. Keep in mind there is no actual evidence that tax cuts can pay for themselves or actually lead to increased revenues. The Treasury Department under President Bush issued a report finding that there was no evidence for this, and Bush's current budget director has also said that tax cuts do not pay for themselves or lead to increased revenue. And yet, President Bush and many of his allies (including, recently, John McCain) have stated numerous times that tax cuts cause increases in revenue.

The Laffer Curve

This idea of revenue increases resulting from tax cuts -- the crown jewel of the supply-side belief system -- could of course be true in some conceivable context. The concept is illustrated by the Laffer curve, named after its creator, which is basically a diagram showing that tax hikes will increase revenues only up to a point, after which tax hikes will actually lead to a decrease in revenue because incentives to work and invest are so severely damaged. If profits are already taxed at 95 percent, raising that rate might, in fact, lead to less revenue, as people realize there is little to be gained from investing or running a business and there are consequently less profits to be taxed. Lowering that rate could instead lead to more business activity, more business profits, and even more taxes paid on business profits. (Or at the very least, more business profits might be reported, leading to more taxes paid.)

But supply-siders often take this idea, which might apply in very few situations in real life, and apply it to the United States today.

While this is the most bizarre form that supply-side economics takes, even the ideology's more mainstream adherents seem to believe that tax cuts will lead to economic growth that is so great that higher budget deficits and starved public services should be considered nothing more than a minor side-effect.

Lawmakers and Media: The At-Risk Community

When a person brings up the idea that a tax cut might lead to increased revenues, serious economists laugh, but lawmakers and reporters often find themselves strangely mesmerized. An idea that justifies offering constituents both a tax cut and higher spending on services is like a narcotic for some lawmakers, impossible to resist even though its ill effects are obvious to all observers. Meanwhile, reporters who find economics to be outside of their area of expertise give uncritical and expansive coverage to an idea that almost no serious economist actually believes in.

How It Began

The supply-side movement began with, to put it mildly, a colorful cast of characters, as Jonathan Chait describes in his excellent book, The Big Con. One is George Gilder, whose book Wealth and Poverty, helped launch the movement. He is also known for such quotes as "There is no such thing as a reasonably intelligent feminist," and he is a strong proponent of ESP (extrasensory perception). Another is Jude Wanniski, who wrote another important book (The Way the World Works) and preached that high taxes led to all evils, including Hitler's decision to invade his neighbors. He later compared Slobedan Milosevic to Abraham Lincoln and insisted that Saddam Hussein never gassed his people.

Then, of course, there is Arthur Laffer, who met with Wanniski and Dick Cheney one day, drew his diagram on a cocktail napkin and convinced Cheney that tax cuts could result in increased revenues. The Laffer curve was born, and progressives have been trying to throw it back into the fires of Mordor ever since.

Rather than dwelling on these interesting characters, we have decided to provide the following information for those who would like to know what supply-side economics is about, how it has influenced policy-making and how we can respond to it.

Two New Reports Explore the Strange Allure of Supply-Side Economic Policies and the Overwhelming Evidence of Their Failure

Supply-Side Ideas Influence the Presidential Race

Isn't It Time to Reassess the Bush Tax Cuts for Investment Income?

Supply-Side Disasters in the Making at the State Level

Presidential candidate John McCain has made statements in the last year indicating that he believes tax cuts pay for themselves. Whether he actually believes this and how he came to this conclusion is all very murky. Senator McCain famously voted against the Bush tax cuts in 2001 and 2003 and has now reversed himself by favoring a permanent extension of all the Bush tax cuts even for the richest Americans, plus a lower rate for corporations and other cuts for business. When asked to explain his previous votes and his reversals, McCain has always given baffling and incoherent answers.

John McCain now says that he opposed the Bush tax cuts in 2001 and 2003 because he thought they needed to be accompanied by cuts in spending to keep the budget deficit under control. Actually, what he said in 2000 about then-Governor George W. Bush's tax plan was, "I don't think the governor's tax cut is too big-it's just misplaced. Sixty percent of the benefits from his tax cuts go to the wealthiest 10% of Americans-and that's not the kind of tax relief that Americans need."

But even if we take his word that he was concerned about the budget, wouldn't that only mean he would be even more opposed to the Bush tax cuts now that we have deficits instead of surpluses? He explained at a debate on September 5 that he voted against the 2001 and 2003 tax cuts because they did not include cuts in spending, which he thought were also necessary. But then he claims that "it's very clear that the increase in revenue we've experienced is directly related to the tax cuts that were enacted, and they need to be permanent."

McCain claims he went from worrying about how tax cuts might damage a budget in surplus to believing tax cuts will help a budget that is in deficit. His conversion may be inexplicable, but it's very real. His tax plan would extend the Bush tax cuts for the rich and slash taxes for corporations, which would benefit stock-holders. He would create an alternative "simplified" tax that would generally make the tax code more complicated. Since it would be voluntary, people would calculate their taxes under the regular system and under the alternative system to see which yields a lower tax. Our estimates show that it would cost in the neighborhood of $98 billion in 2012, half of which would go to the richest one percent.

During his 2000 presidential campaign, Senator McCain said, "There's one big difference between me and the others -- I won't take every last dime of the surplus and spend it on tax cuts that mostly benefit the wealthy. I'll use the bulk of the surplus to secure Social Security far into the future to keep our promise to the greatest generation."

So McCain once said he won't spend an entire budget surplus on tax cuts for the wealthy, but apparently he has no problem cutting taxes for the wealthy when the budget is in deficit. We would like to say this reversal is surprising but, sadly, we've seen it before.

What about McCain's opponent? One would hope that presidential candidate Barack Obama would represent a clean break with the supply-side thinking of the past, but the reality is slightly more complicated. During his speech at the Democratic convention in Denver, Senator Obama said, "Change means a tax code that doesn't reward the lobbyists who wrote it, but the American workers and small businesses who deserve it." Curiously then, Senator Obama proposes to keep in place a loophole for corporate dividends created in the Bush years. President Bush and his allies in Congress enacted a special loophole for dividends (a top rate of 15 percent) that will expire at the end of 2010 along with the rest of the Bush tax cuts if Congress simply does nothing. Instead of allowing the dividends loophole to completely expire, Senator Obama wants dividends to be taxed at a top rate of 20 percent for, roughly, the richest two and a half percent of Americans and a top rate of 15 percent for everyone else.

At the time the dividend tax cut was enacted in 2003, Michael Kinsley pointed out that "[u]nlike, say, interest on a savings account or money-market fund, which are taxed every year, corporate profits are allowed to compound tax-free until they are paid out as dividends or the stock is sold. A notorious quirk in the tax law wipes out a lifetime of taxes on stock that is passed on to your heirs. Dividends and capital gains are also exempt from the Social Security and Medicare taxes. One way or another, it is the rare dollar of corporate profits that bears a tax burden heavier than the burden on an employee's wages."

True, Senator Obama does want to allow tax rates on ordinary income to revert to the rates that existed under Clinton for the very richest Americans, and he will allow the tax subsidy for capital gains to shrink back to the level that existed under Clinton (a top rate of 20 percent instead 15). But apparently Obama agrees with President Bush that taxing dividends just like the income most people receive as wages would be either unfair, or damaging to the economy, or both.

Of course, Obama certainly has never claimed that tax cuts can pay for themselves. But the less insane aspects of the supply-side ideology have influenced some of what he has said about taxes. In particular, he seems to believe that not allowing most Americans to keep the taxes they received under Bush would be bad for the economy. He told the multitudes in Denver, "I will -- listen now -- I will cut taxes -- cut taxes -- for 95 percent of all working families, because, in an economy like this, the last thing we should do is raise taxes on the middle class." We could probably think of all sorts of things that would be the "last" thing we want to do in an economy like this (cutting back on education spending, allowing the health care system to plod along in its current inefficient manner) and that would be worse than having a higher tax bill.

So Obama is certainly not a supply-sider, but he's not exactly facing down the supply-siders either. Allowing everyone but the richest 2 and a half percent to keep the Bush tax cuts (and even extending some cuts for these very richest taxpayers) is not exactly a clean break with the failed supply-side policies of Bush. At the same time, his tax cuts would be aimed at the middle-class and would make the tax code more progressive overall, which would be an enormous improvement over the policies of the current president.

(See CTJ's recent report, "The Tax Proposals of Presidential Candidates John McCain and Barack Obama.")

Citizens for Tax Justice has recently released several reports on the tax issues being debated during this presidential election season.

1. The Tax Proposals of Presidential Candidates John McCain and Barack Obama

Last week CTJ released this 15-page report on the tax plans offered by the two candidates. The report includes estimates of the distributional and fiscal effects of both candidates' plans in 2012, a year when almost all of the provisions of either plan would be in effect if enacted. These estimates include the effects of making the Bush tax cuts permanent (partially, in Obama's plan, and almost entirely, in McCain's plan) as well as their proposed changes to the AMT, corporate tax, and the other tax changes they propose.

The report finds that Obama's tax plan would give a larger tax cut, on average, to taxpayers in the bottom 60 percent of the income distribution than McCain's plan. Interestingly, while Obama's plan would give a small tax cut, on average, to the richest one percent, McCain's plan would give this group an average tax cut that is 43 times as large.

2. Obama and McCain Propose New Stimulus Plans, Including More Tax Breaks

In addition to the tax plans that both candidates have been promoting for months, McCain and Obama both have recently proposed new, temporary tax cuts as a way to stimulate the economy and help people avoid the consequences of the downturn in the market. As this report explains, neither of the candidates' tax cuts seem very promising when it comes to helping Americans who are genuinely struggling, but McCain's proposals are particularly alarming because their benefits would be heavily targeted to the rich. He proposes to slash the capital gains rate, which would further bias the tax code against work and in favor of people who live off their wealth, and we estimate that over three fourths of the benefits would go to the richest one percent.

McCain also proposes that withdrawals of up to $50,000 from 401(k)s and IRAs, which are currently taxed as ordinary income, be subject to a top income tax rate of 10 percent. This obviously does nothing for a senior whose income is too low to trigger income tax liability or whose taxable income does not exceed the 10 percent bracket. But it would be a real boon for a very rich senior who would otherwise pay income taxes at a rate of 35 percent on such a withdrawal.

3. McCain's Proposal to Increase the Tax Loophole for Capital Gains Would Be Unfair and Counterproductive

This report explains in more detail why lawmakers should not take up McCain's proposal to expand the existing loophole for capital gains, and why they should move in the opposite direction and start taxing investment income just like any other income. Anyone who thinks that doing away with the lower rates for capital gains and dividends is too radical an idea is reminded that Congress has done it before -- under the leadership of President Reagan.

4. Does Joe the Plumber Need a Tax Break?

No discussion about this presidential race would be complete without some mention of Joe the Plumber, the man who asked Obama about how he would be affected by Obama's tax plan if he became a small business owner. Obama responded that someone like Joe needs a tax cut now, when he's working his way up and saving money, rather than later on when he's joined the ranks of the very richest Americans. We also note the oddity of McCain professing to be worried about a tax code that punishes this man's hard work while proposing to expand the very loopholes that bias the tax code against work.

Just like individuals, entities that have any sort of income are required to pay taxes on that income. This is how we pay for roads, schools, tanks and many other things. But because life is complicated, we have made exceptions for some entities, allowing them to claim tax-exempt status. One would think that the taxpayers, acting through their elected officials, should be able to decide what the conditions are for enjoying such tax-exempt status. For example, there seems to be no reason to grant a tax subsidy to an organization that endorses a political candidate. Most people would agree that we should not grant a tax subsidy for activities geared towards winning political power for an individual or party.

But there is at least one organization that disagrees. The conservative Alliance Defense Fund seems to believe that Congress has no right to set such conditions on an entity enjoying tax-exempt status. The ADF sponsored what it called "Pulpit Freedom Sunday" a week ago, which consisted of 33 conservative pastors endorsing presidential candidate John McCain during church services. If any church loses its tax-exempt status, the ADF wants to challenge this action by the IRS on the grounds that the right to free speech under the First Amendment is being violated.

As one preacher in Minnesota recently put it, "The scripture is very clear about our need to obey all laws," he said. "I want people to realize that there are two laws here that compete with each other. The IRS says that I cannot talk about politics. The Constitution says I can. Unless there's a court battle, we don't know which law to obey."

Actually, there is no conflict, and such a challenge will not stand up in court. Every organization is free to endorse whomever it wants for any political race. The law simply says the government will not grant any organization doing so an exemption from taxes.

Some of the pastors involved actually seemed quite aware of this. The same Minnesota pastor said he was aware that his church could lose its tax-exempt status "but it's not that big a deal... The church will go on." That's actually a rather startling admission. If the churches don't actually need a tax exemption, then there really is no conflict here after all.

Fox News Anchor Demands that McCain Campaign Official Explain Why He Is Lying About Obama's Tax Plan

Think Progress caught Fox News anchor Megyn Kelly last week pushing back at McCain spokesman Tucker Bounds for defending his campaign's claims that Barack Obama intends to raise taxes on working-class people.

"But you guys have suggested he's going to raise taxes on the middle class and virtually every independent analyst who took a look at that claim said that's not true," Kelly said. "he'll raise it on people making $200,000 or $250,000, but not the middle class." When Bounds tried to defend his boss's honor, Kelly shot back, "I'm not giving him any credit. I'm saying what the independent analysts say. They say that claim is false."

Citizens for Tax Justice, along with many others, has made the same point in recent weeks. Last week CTJ released a fact sheet that refuted the McCain campaign's claims that Obama proposes "painful tax increases on working American families." Obama has proposed to repeal the Bush tax cuts for only married couples with incomes above $250,000 and singles with incomes above $200,000. Since the Bush tax cuts expire at the end of 2010 anyway, this means that for years after 2010, there would simply be no change in the law affecting taxpayers with incomes above those levels (except that a couple of Obama's tax cuts would benefit even these wealthy taxpayers). For everyone else, Obama proposes to extend the Bush tax cuts past 2010 and he also proposes a raft of new tax cuts targeting the middle-class.

Earlier this year CTJ found that only 2.1 percent of taxpayers have adjusted gross income (AGI) above $250,000 and only 3.2 percent have AGI over $200,000. Senator McCain has been telling crowds that "Senator Obama will raise your taxes." Unless Senator McCain is addressing only the richest 2 or 3 percent of Americans (which seems an unlikely campaign strategy) it's hard to avoid the conclusion that McCain has decided to mislead the public. In fact, it's so hard to avoid this conclusion that even Fox News has begun to accept it.

A new fact sheet from Citizens for Tax Justice clarifies some of the myths about presidential candidate Barack Obama's tax plan that have been perpetuated by the campaign of his opponent, John McCain. While CTJ does not think that new tax cuts will improve the lives of ordinary Americans, we do feel that the public should receive accurate information about the tax cuts both candidates are offering.

President Bush and his allies in Congress enacted tax cuts that are scheduled to expire after 2010. Obama would repeal the Bush tax cuts for the richest 2 or 3 percent, which means that for years after 2010 there would simply be no change in the law for these taxpayers. For everyone else, Senator Obama would change the law to make the Bush tax cuts permanent, and he also proposes many additional tax cuts for the middle-class. Even the richest taxpayers would enjoy some tax cuts under Obama's plan after 2010 that they would not receive under current law (a partial extension of the cut in the estate tax and a partial extension of the loophole for dividends).

Senator McCain voted against the Bush tax cuts but now insists that they must all be made permanent for all Americans regardless of how rich they are. The fact that Obama would not make them all permanent for the richest 2 or 3 percent has been falsely presented by the McCain campaign as "painful tax increases on working American families."

Both candidates also propose additional new tax cuts, but Obama's target low- and middle-income families while McCain's generally target businesses and corporations.

Read the fact sheet.

For someone who wants to make the Bush tax cuts permanent for all but the richest 2 or 3 percent of Americans, and add on top of that a lot of new tax cuts for middle-class Americans, it's surprising how often Senator Barack Obama is accused of proposing "painful tax increases" on American "families."

Few people remember the Clinton years as a time when the economy was strangled by taxes, but today almost no one in politics seems to consider allowing all of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law. In keeping with this trend, Senator Obama proposes to make the Bush tax cuts permanent, except for those with incomes over $250,000 (or $200,000 for single people). Families with incomes under these levels would keep their Bush tax cuts and many would benefit from Obama's Making Work Pay Credit, his refundable education credit, his refundable mortgage credit and many other provisions. (In January CTJ found that only 3.2 percent of households in the U.S. will have adjusted gross income above $200,000 in 2008 and only 2.1 percent will have AGI over $250,000).

McCain Commercials Panned as Deceptive

Nonetheless, the McCain campaign has tried to paint Obama as a major tax-hiker. The campaign started out by trying to make hay of Obama's vote for the Democratic budget resolution for 2008 that assumed the extension of many -- but not all -- of the Bush tax cuts. That budget resolution assumed that the 25 percent rate would expire and revert to 28 percent, which could cause a tax increase for a single person with taxable income above $32,550, which comes out to almost $42,000 in total income.

Never mind that budget resolutions are not law and do not raise taxes. And never mind that Obama has repeated over and over that he would extend the Bush tax cuts for everyone except those with incomes over $250,000 (or $200,000 for singles).

As FactCheck explains, the McCain campaign aired a commercial saying Obama wanted to raise taxes for everyone making $32,000 a year, but even they realized this was an outright lie since taxable income is not the same thing as total income. So then they aired a commercial telling viewers that Obama would raise taxes on people making $42,000 a year and showed a woman reading to her two children. Of course, the $42,000 figure refers to a single person, and a head of household with two children could make more than $62,000 before falling into the bracket subject to the increased rate. And of course, none of this matters, because it is not part of Obama's tax plan.

The Latest Deceptions

The McCain people haven't stopped. The campaign has a new ad that speaks of Obama's "painful tax increases on working American families." Surrogates for the campaign have made statements that seem to indicate they are either proudly ignorant of the facts or outright liars. Media Matters points out that Senator Richard Burr (R-NC) told Tom Brokaw that Obama would raise taxes "across the board on the American people without exception."

McCain's Advisers Know Their Campaign Is Lying

The most damning aspect of these statements is that the chief economic adviser to Senator McCain has acknowledged that the Obama tax plan does not raise taxes. TIME's Michael Sherer wrote, back in July:

"Here is Douglas Holtz-Eakin, McCain's chief economic policy adviser. 'I used to say that Barack Obama raises taxes and John McCain cuts them, and I was convinced,' he told me in a phone interview this week. 'I stand corrected [about Obama's plans].'"

Some anti-tax commentators and right-wing blogs have apparently given up trying to paint Barack Obama's tax plan as a tax increase on the middle-class (since that would be untrue in any interpretation humanly possible). Instead, they have settled on a novel argument: The Obama tax plan would unacceptably raise marginal tax rates on low- and middle-income people, as argued by Alex Brill and Allen Viard of the American Enterprise Institute.

People who don't live and breathe tax policy might scratch their heads and say, "Wait, I thought I heard that Obama wants to cut taxes for everyone except the rich."

He does. The critics' new argument is not that he would raise taxes but that he would raise the marginal rates, meaning the tax rate applicable to an additional dollar of income, for people in specific income ranges. This would occur, they complain, because the various new or improved tax credits that Obama proposes would be phased out for people above certain income levels.

Imagine a working person paying income taxes at the 25 percent rate. Imagine also that in 2009 this person benefits from a newly enacted tax credit that is phased out for people with higher income, at a rate of $100 for each $1,000 of income over some threshold, and that this taxpayer's earnings are just one dollar above that threshold. The critics reason that this would translate into a tax rate of 10 percent for each additional dollar earned, on top of the ordinary income tax rate of 25 percent, resulting in a marginal rate of 35 percent. This would be true even though the taxpayer has lower taxes as a result of the new credit. Surely, the critics argue, this person would be better off if she never received the tax credit, because then her marginal rate would be just 25 percent, and she would have greater incentive to work and save.

The right-wing critics want this working person to pay higher taxes? Are they against tax cuts? Yes, actually, if they're targeted towards poor or middle-class people. These critics are essentially against any tax benefit (or any public benefit, for that matter) that is made available only to people with incomes below a certain level because such income-targeting, in their view, discourages people from working harder to increase their income.

So would low-income people or middle-income people see a new credit on their federal tax form and decide that they should work fewer hours? No. Common sense, and the academic literature on this topic, tell us that people do not respond this way to tax policy.

The evidence that marginal tax rates really impact decisions about work is weak or nonexistent. The last time the right trotted this line out, it was to support the Bush income tax cuts, which reduced marginal rates, with most of the benefits going towards the well-off. (Put aside for a moment the tax cuts Bush has showered on people who live off their investments.) As the Center on Budget and Policy Priorities pointed out back when the 2001 Bush tax cut was being debated, it's not clear that higher marginal rates discourage work or savings, and they may even encourage it. Logically, if someone has a particular earnings goal or savings goal, the result of a higher marginal tax rate could be that they work more in order to meet that goal. The Center on Budget cited several economists who found that the evidence pointing towards reduced work was very weak.

It is extremely doubtful to us that cutting taxes for any income group is a wise policy right now given the budget deficit and the fact that people are paying relatively low taxes already. But Senator Obama has proposed tax cuts nonetheless, and he at least has ensured that the bulk of them would go to people who are not super-rich. Some right-wing activists feel like they've won the argument about whether tax cuts are good -- both candidates seem to think they are -- so now they want to argue with Obama because he refuses to target most of his tax cuts towards the wealthy instead of the poor and middle-class. It's a telling moment for the right. And it shows us what happens when you start to give in to anti-tax rhetoric.

Presidential candidate Barack Obama has talked up several proposals relating to energy and taxes over the past couple weeks, including a one-time tax rebate of $500 per spouse that would be funded by a five-year windfall profits tax on oil companies. He also proposes a $7,000 tax credit for "advanced technology vehicles" which include hybrid cars that can be plugged into an electrical socket and flexible fuel vehicles (which can run on gasoline or ethanol). Obama has also supported eliminating tax loopholes for oil and gas companies. He also supports a cap and trade program in which businesses must obtain an allowance to emit carbon pollutants and all of these allowances (rather than just a portion of them) would be auctioned off, raising revenue that can be reinvested into alternative fuels and assistance to keep families from being harmed by the increased cost of energy.

His recent statements have caused some controversy, particularly his call to release oil from the Strategic Petroleum Reserve and his statement that he could be open to repealing the ban on offshore drilling if it was part of a larger compromise on energy policy. But some of the more strident criticism has been aimed at his desire to close tax loopholes and implement a windfall profits tax. Critics argue that many businesses have a period of unusually high profits and it's not clear why targeting the oil industry for a change in tax treatment makes any sense.

But that argument largely misses the point. The oil and gas industry has not just profited enormously. It has profited enormously partly because Americans are subsidizing it through the tax code -- and these tax subsidies have resulted in no clear benefit for the American public. Even if the tax subsidies are repealed, the public will never recoup the revenue showered on the oil and gas industry over the past years unless a windfall profits tax is implemented. The windfall profits tax blocked by Senate Republicans earlier this summer would sensibly ensure that any profits reinvested in renewable energy would not be subject to the tax.

A report released by Citizens for Tax Justice in July makes this argument and explains just how well oil and gas company stockholders are doing, just how little they invest in alternative energy, and how much they have siphoned from federal revenue through tax loopholes. For example, the report cites the American Petroleum Institute (API) which admits that in the six years stretching from 2000 through 2005 the oil industry only put a total of $1.2 billion towards investment in alternatives to fossil fuels, which is just 0.3 percent of its $383 billion in net profits over that period. If this figure had increased since then, the industry would surely be publicizing that fact.

But while the public has not benefited from the tax subsidies for the oil and gas industry, stockholders surely have. As the report explains, if you invested $10,000 in the top five oil companies 20 years ago, your portfolio would now be worth $100,000. That same $10,000 invested in an S&P 500 index fund is now worth $60,000. Oil shareholders enjoy a big advantage, and hardly seem in need of tax subsidies.

Whether a small tax rebate is what working families really need right now seems doubtful, but closing tax loopholes for oil and gas companies is a common sense policy, and a windfall profits tax might be a sensible supplement to this policy.

This week brought news that many politicians who see tax cuts as the solution to our economic woes tend to unilaterally cut their own taxes -- by not paying them. Needless to say, political candidates running on a platform of fiscal responsibility strain credibility when it's revealed that they cannot even keep their own fiscal house in order. On Wednesday, The Politico ran an article with a list of House challengers and incumbents who have suffered tax penalties for reasons ranging from misreporting to late payments of their property, business, and income taxes. Some even continue to have tax bills outstanding during their candidacies.

For example, Keith Fimian, a Republican running for an open seat in Northern Virginia was charged $16,000 for a lien filed against his home appraisal business in 2005 after the company lost track of some of its 5,000 subcontractors. Republican Luke Puckett running for a U.S. House seat in Indiana still owes nearly $2000 in property taxes due in 2006.

It's easy to be cynical when you see politicians like Mr. Fimian and Mr. Puckett respectively calling for "lower and fewer taxes" and "mak[ing] the Bush Tax Cuts permanent." Taxation is a necessary requirement of democratic governance and we expect our politicians, who should know better than anyone the importance of adequate tax revenues, to set a good example by paying their taxes in-full and on-time.

Unfortunately, one of this year's presidential candidates has had some oversights in the tax department himself. Newsweek reported several weeks ago that the McCain family failed to pay property taxes on one of their homes in La Jolla, California for four straight years.

Separately, Time Magazine reported that Sen. McCain commonly spends several thousands of dollars shooting craps at casinos. Yet for the past two years, he has failed to report any gambling gains or losses on his tax return. You're required to file a Form W-G if you win more than $600 at any one time.

Perhaps, we should give Senator McCain the benefit of the doubt and assume that he never purposely avoided paying taxes but merely erred unintentionally in these matters. This lack of attention to detail is not very comforting, especially when we consider some of the promises he has made that do not add up.