Yesterday, John McCain released a set of economic policies that he would push if elected president. Some are good. Some are not so good. One of the not so good policies is the increase in the personal exemption for dependents. The TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation estimates that such a provision, if it were in place in tax year 2008 (along with an AMT patch), would cost approximately $24 billion in revenue relative to the baseline of current law with AMT patch. Relative to other years’ baselines, the cost may be different depending upon such variables as the personal exemption phaseout, the marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s, and AMT.
If McCain is looking to cut taxes, there are so many better ways for using $24 billion in tax cuts than increasing the personal exemption. It would even be better to increase the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. even though they may sound the same. At least the standard deduction increase would lead to fewer people itemizing and thereby likely reduce the economic distortions in the code that permeate from some of the itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s.
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