McCain’s Personal Exemption Increase Would Cost About $24 billion for 1 Year

April 16, 2008

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 Tax 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 rates, 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 deduction 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 deductions.

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