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More Tax Credit vs. Exemption vs. Deduction vs. Exclusion Ignorance (John McCain Edition)

2 min readBy: Gerald Prante

It is maddening. If you're not going to take the time to understand the basics of the standard 1040 (income, adjustments, exemptions, deductions, 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. rates, credits and payments), then stop writing about it (if you're a journalist) or stop bragging about your tax policies to the general public (if you're a politician).

Earlier today we documented how Joe Klein and Joe Biden are misleading the American public (either intentionally or out of shear ignorance) on McCain's health care tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. . Now a USA Today article makes the following claim:

Obama and the Democrats are wrong in saying McCain believes that only those making over $5 million income are rich.

Here is the quote, at a mega-church forum in California last month when Pastor Rick Warren asked McCain to define rich:

"Some of the richest people I have ever known in my life are the most unhappy. I think that rich should be defined by a home, a good job, an education and the ability to hand our children a more prosperous and safer world than the one that we inherited. I don't want to take any money from the rich, I want everybody to get rich."

McCain then went on to say he did not believe in "class warfare or redistribution of the wealth," and defended his $7,000 per child tax credit and $5,000 health insurance tax credit proposals.

It is not a tax credit. It is a tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. . And there is a big difference. A credit would be much more costly (and rewarding to taxpayers). And a $7,000 child tax credit would be more progressive than a personal exemption doubling, which is what McCain is actually proposing.

This is not as egregious as Joe Klein's or Joe Biden's claim that McCain's health care tax credit is not sufficient to cover the additional income tax before credits from the elimination of the exclusion of employer-provided health insurance from the income base. However, this is just another example of the continued misinformation on tax policy that is coming from the media and both campaigns.

McCain himself didn't understand the difference in an interview he did with ABC News earlier this summer. (Also in the interview McCain implied that his tax cuts would increase revenues, which of course is ridiculous.)

And it gets worse when you have a paper like the Pocono Record that will allow this type of column to run in a paper in a state that could actually make a difference in the election. Allowing a chain e-mail to run in a serious newspaper column as purported fact is absolutely pathetic.