The 2012 U.S. presidential election has evolved into a contest over differing visions for America's future, and tax policy is no exception.
Video of Mitt Romney's recently leaked May speech to backers saw him saying about half of the country's population—47 percent—is dependent on government benefits paid for by taxes from the other half. Romney, who also said on the tape that the country's dependent population would not vote for him, confirmed this vision at a campaign stop Wednesday.
"I know there are some who believe that if you simply take from some and give to others then we'll all be better off," Romney said, referring to the redistribution of wealth, a concept he says Democratic President Barack Obama supports. "It's never been a characteristic of America."
In response, Obama said on The Late Show with David Letterman he believed that the majority of Americans are hard working and do not abuse government benefits. "One of the things I've learned as President is you represent the entire country. And when I meet Republicans as I'm traveling around the country, they are hardworking family people who care deeply about this country," he said. "And my expectation is if you want to be President you've got to work for everybody, not just for some."
Romney's comments and Obama's response have already become fodder for political advertisements, and are likely to be repeated until the election in November. But they do highlight the divergent views of the candidates: Romney believes government benefits should be cut, while Obama believes in providing a social safety net. And an important way to determine what these conflicting views would mean for the average American is to look at their plans to reform the tax code.
U.S. News reviewed each candidate's tax plan and consulted with tax experts to determine how these plans would impact Americans. Each plan has distinct winners and losers, and, according to experts, would have an impact far beyond the pocketbook: These plans could play a large role in shaping the future of the American economy.
Under Obama's plan
The president's tax plan has been spelled out by the White House in recent years: Obama would extend the Bush-era tax cuts for all Americans, except for households who make more than $250,000 per year and individuals who make more than $200,000 per year. This means the wealthy would see steep increases in their tax liability.
The Obama plan would also increase taxes on investment income, raising the capital gains tax and dividend tax. These would hit Americans with large investment portfolios—again, primarily the wealthy.
There are also tax increases connected to Obama's healthcare reform act that would impact the wealthy, in addition to new limits on itemized deductions on tax returns.
According to Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, the middle class would largely be spared under Obama's plan. "We're talking about less than 2 percent of the population that would see an increase in taxes," he says. "The rich are going to get hit again and again and again."
Under Romney's plan
If Romney were elected president, the Bush-era tax cuts would be extended for all Americans, regardless of income. He would also cut tax rates across the board by 20 percent and would repeal the tax provisions of the Obama healthcare legislation.
In addition, Romney would eliminate taxes on long-term capital gains, interest income, and dividends for married couples with income of less than $200,000. He would also repeal the federal estate tax.
Romney would make up for lost tax revenue by eliminating deductions, although he has not specified what those deductions would be and whether they would make up the revenue difference.
Romney would also allow the American Opportunity Tax Credit for higher education, the earned income tax credit, and the childcare credit to expire. According to Williams, Americans with low incomes would receive little tax relief.