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President Bush may not have been AWOL during his National Guard stint during the Vietnam War, but likely Democratic nominee Sen. John Kerry's tax plan could be described as missing in action.

With the Massachusetts senator all but assured of the Democratic presidential nomination, independent and Democrat voters have placed their faith in a man who has offered little in the way of specifics about his plans for tax and fiscal policy.

That's not to say that Kerry's reticence on detailing fiscal matters should sound any alarms. His position, while vague, has been stated often enough: He advocates repealing President Bush's tax cuts that help the wealthy, while keeping those that benefit the middle class.

"Middle class" -- an amorphous term at best -- was loosely defined by President Bill Clinton as families with less than $150,000 in adjusted gross income. Sen. Kerry hasn't been specific about what qualifies as "wealthy."

Most Washington observers agree that Kerry will almost certainly target the top income tax bracket, advocating a return to the rate to 39.6%. The top income bracket is 35% for 2004, and it applies


to taxable income (that's the amount remaining after all exemptions and deductions have been taken) in excess of $319,100 for both singles and married couples.

Sen. Kerry has largely avoided any mention of the reduced rate on long-term capital gains and certain stock dividends, leaving many to assume that he wouldn't touch these rates, which are due to expire Jan. 1, 2009.

"I suspect he'll raise the top tax rate back to 39.6%," says Chris Edwards, director of fiscal policy for the Cato Institute, a conservative think tank in Washington, D.C. "It's ambiguous what he'd do with capital gains and dividend taxes. The stock market's rise has largely been attributed to those tax cuts. Repealing those taxes could mean the market takes a hit -- a risk Kerry probably isn't willing to take."

Indeed, Kerry has promised to keep a fair amount of President Bush's tax benefits for individuals in place, most notably, alleviating the marriage penalty, increases in the child tax credit and the establishment of the 10% income tax bracket.

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Kerry abstained from the 2001 Senate vote that passed President Bush's first round of tax cuts, the thrust of which were aimed at lower income tax brackets. Kerry voted against the 2003 tax cuts, which instituted the lower rate on long-term capital gains and certain dividends. He voted in favor of the 2002 tax cuts, most of which were aimed at small businesses.

The senator has introduced some new ideas in his campaign, chief among them a $4,000 tax credit for college tuition. The proposed credit also would be refundable, meaning even low-income people who may owe less than $4,000 in taxes would get the remainder of the credit as a refund. Sen. Kerry has not said whether the credit will be available only to taxpayers below a certain income.

There's some reason for Kerry to be fairly circumspect in his tax policy. In essence, the president doesn't make tax policy; Congress does. And anything too far afield from President Bush's plan likely will have a tough time in Congress.

"Once the rhetoric dies down, if Kerry is elected, Congress will have to hash out a tax plan," says Peter Sepp, a spokesperson for the National Taxpayers Union, a policy lobbying group aimed at minimizing taxes. "That's when we'll see what's directed at the truly wealthy, or just establishes artificial cutoffs."

Contrary to most voters' perceptions, though, tax policy is not solely based on what applies to their 1040 forms. And Kerry, in his role as senator, rather than presidential candidate, has introduced several sophisticated and creative tax bills, according to Tom Oschenschlager, vice president of tax for the American Institute of CPAs.

In early October, Sen. Kerry sponsored a bill that would raise the top tax bracket by an unspecified amount, a move intended to finance the rebuilding of Iraq. The proposal was to increase the top tax rate -- which applies to less than 1% of all taxpayers -- by an amount that would increase federal revenue by $87 billion over 10 years. That figure is what President Bush had asked Congress for at the time of Kerry's proposal.

A more intriguing example of Kerry's use of tax policy to effect real change in the uneven economic recovery is a package he drafted in November. The bill grants tax relief to small to midsized manufacturing companies that provide domestic jobs. "It approaches the issue from two or three different angles," Oschenschlager says. "It's a pretty sophisticated bill."

The bill, for instance, would provide a credit for wages paid for new employees. And to stimulate the growth of such small manufacturing companies, investors who make direct investments in the companies (as opposed to buying shares on the open market) will reap a huge tax break when they eventually divest. Those who hold stakes for a minimum of five years would be able to exclude 75% of any gain from taxes.

In the muddled realm of internet taxation (an issue that affects only state taxes), Sen. Kerry has straddled positions. He was an original supporter of the tax moratorium of 1998, which prevented tax on Internet access. On the subject of collecting state sales tax on products purchased online, Sen. Kerry has said that he does not want online retailers to have an unfair advantage over brick-and-mortar businesses, but also does not want to see online retailers burdened with unwieldy tax collection and distribution responsibilities.

Kerry has a ways to go before any campaign rhetoric becomes tax law, but some goals are clear. If elected, the 0.8% of taxpayers who are in the top income tax bracket will likely see their rate rise. The nebulous middle class will see some change, although how much or what form seems unclear. And small businesses will likely do well. Kerry's campaign team, though, failed to return several calls. Perhaps it's too busy developing policy.