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Democrats, the economy and taxes
Kerry, Edwards both want to roll back tax cuts for wealthier Americans; how would that affect you?
July 7, 2004: 2:30 PM EDT
By Mark Gongloff, CNN/Money staff writer

NEW YORK (CNN/Money) - It's too early to gas up Air Force One for Sen. John Kerry or pick out drapes for the Naval Observatory for Sen. John Edwards, but it's not too early to think about how the Democratic party's likely nominees for president and vice president would manage the world's largest economy.

According to their campaign promises, they'd both handle it in very similar ways. Both have pledged to leave alone the parts of the recent tax cuts that favor the middle class, and both have promised to enforce trade laws and offer incentives for companies to hire U.S. workers.

But they may also repeal some of the tax cuts that benefited the wealthiest Americans, and may not support the legal reforms the Bush administration favors, meaning a Kerry-Edwards victory in November could be met with grumbles on Wall Street.

Of course, what Kerry and Edwards would want and what they might get if they win could be two very different things if Republicans maintain control of one or both houses of Congress.

"I think we should know about candidates' desires and views, but I think it would be a mistake to assume that they will become reality," said Sung Won Sohn, chief economist at Wells Fargo.

Big plans for little deficits

Like President Bush, Kerry has pledged to cut the swollen federal budget deficit -- which was the biggest as a percentage of gross domestic product in 10 years in 2003 -- in half in the next four years. But analysts have criticized both men for offering little in the way of concrete plans for accomplishing such a goal.

Kerry has promised to roll back some of the tax cuts passed in 2001, 2002 and 2003, cut government waste and push for Congressional rules to curb spending, among other things.

But he has also proposed a health-care plan, new tax cuts for individuals and businesses and other spending plans, making the accomplishment of his goal extremely difficult, according to some analysts.

Protecting some tax cuts

While some of their rivals in the Democratic primaries wanted a total repeal of the tax cuts passed in the last three years, Kerry and Edwards wanted to retain the cuts that favored the middle class, while repealing cuts for wealthier Americans.

Kerry said he wanted to roll back tax cuts for families earning more than $200,000 a year. As a result, those people would see their tax rates rolled back to 2000 levels -- 39.6 percent for people making $319,000 or more and 36 percent for people making between $200,000 and $319,000 (compared with 35 and 33 percent, respectively, under the new tax law).

Dividend tax rates would also jump back up to the tax rates of regular income -- but Kerry said he would give a dividend and capital gains tax cut to people in the "middle class," though he has not yet defined what he meant by that (making less than $200,000?) or what sort of cut he'd give. The new tax law cuts the rate on the top four brackets to 15 percent and the lower brackets to 5 percent in 2007 and 0 percent in 2008.

But Kerry also wanted to keep the higher child tax credit, the lower marriage penalty and the new 10 percent bracket for lower-income families. He also called for new tax credits for health care and college tuition.

Edwards had similar ideas, saying he would keep the tax on very large estates, and would raise the top rate on capital gains to 25 percent for families earning more than $350,000, which he said represented less than 1 percent of all Americans.

Edwards also called for adjusting the tax code so that the top 1 percent pay the same tax rate on investment income that middle-class families pay for their wage and salary income. And he proposed additional tax breaks, such as a $5,000 credit for first-time home buyers.

It's uncertain whether Kerry will incorporate any of Edwards' proposals in his campaign. The Kerry campaign could not be reached for comment.

Tough -- but not too tough -- on trade

Kerry and Edwards have also been similar in their approach to trade. While other Democrats talked about canceling trade agreements to protect U.S. jobs, Kerry and Edwards were less protectionist.

Though Kerry made noises during the primary campaign about punishing "Benedict Arnold CEOs" for sending jobs overseas, he has toned that rhetoric down.

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Debating the tax cuts

Both Kerry and Edwards said they would keep current trade pacts, but promised to enforce them more vigorously. Kerry has taken the extra step of promising a 120-day review period of all current agreements, to ensure trading partners meet environmental and labor standards.

Both have also promised to repeal corporate tax breaks for companies that move jobs offshore, and both would give new incentives for manufacturers who hire U.S. workers. (For more on Kerry's corporate tax plan, click here.)

Kerry, for example, has been a supporter of allowing U.S. multinationals to repatriate foreign earnings at a super-low tax rate for a year, as long as they put a plan in place to spend the money in the United States. Such a measure was part of separate corporate tax bills passed recently by the Senate and the House, which could become law as early as this year.

Lofty job growth goals

After a long slump, the deepest in many ways since the Depression, job growth has resumed in recent months, blunting a potential Kerry-Edwards campaign weapon.

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But U.S. payrolls are still more than 1 million jobs lower than they were when Bush took office, and Kerry has promised to create 10 million jobs in his first term as president, with his hiring incentives and a plan to cut the corporate tax rate by 5 percent.

While still a candidate for the Democratic nomination, Edwards was equally bold, promising his plans would create 5 million jobs in two years.

Such promises could be risky gambits -- at various times, the Bush administration has promised its policies would add specific numbers of jobs, giving Democrats a handy talking point when such job growth failed to materialize.

Whither tort reform?

Former plaintiff's trial lawyer Edwards may be seen as anathema in the business community, which avoids lawyers like the plague. The Wall Street Journal reported Tuesday morning that Tom Donohue, head of the U.S. Chamber of Commerce, has vowed to defeat a Kerry-Edwards ticket, just to strike back at trial lawyers.

President Bush, with his finger on the pulse of corporate America, has promised to push for some tort reform, such as moving all class-action lawsuits to federal court.

But Edwards has also promised to take some measures to keep lawyers in check, including making them get potential lawsuits reviewed by independent experts to determine their merit before filing.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.