Personal Finance

Tax breaks: What candidates are proposing

The presidential front-runners are vying for votes with lots of new ideas, including new incentives to save, invest and buy insurance.

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By Jeanne Sahadi, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Presidential campaigning is a promise-making fiesta, and never more so than when it comes to taxes.

All of the leading 2008 presidential candidates have proposed new tax breaks. Some are designed to encourage behaviors such as investing in stocks or buying health insurance, or to promote economic growth. Others are offered as ways to make the tax code more fair in the eyes of the candidate.

These breaks will have an effect on federal government coffers, although just how much hasn't been measured yet. In some instances, when one tax break is proposed, it is intended to replace an existing break already on the books.

Below are some of the tax breaks that the presidential front-runners have proposed so far. Not all candidates are equally detailed in their proposals, nor has every candidate weighed in on each tax break listed here.

The front-runners were determined by the results of CNN's most recent national polls in which a candidate got at least 10 percent of the vote. Among the Democrats, they are Hillary Clinton, Barack Obama and John Edwards. From the Republican field, there is Rudy Giuliani, Mitt Romney, Fred Thompson, John McCain and Mike Huckabee.

INVESTMENT TAX BREAKS

One of the most politically divisive tax issues in the presidential campaign is whether to extend President Bush's tax cuts on long-term capital gains and dividends.

Currently they're both taxed at 15 percent (less for low-income taxpayers), and they are scheduled to rise by 2011 to 20 percent for capital gains and to ordinary income tax rates for dividends.

Edwards: Would make the first $250 of interest, capital gains and dividends tax-free for everyone, although he would favor raising the capital gains tax rate to 28 percent for taxpayers making more than $200,000.

Obama: Would eliminate capital gains taxes for business start-ups, although he would favor raising the capital gains tax rate to somewhere between 20 percent and 28 percent for taxpayers making more than $250,000.

Romney: Wants to eliminate the tax on interest, capital gains and dividends for taxpayers with adjusted gross incomes under $200,000, and would make the Bush investment tax cuts permanent for everyone else.

Giuliani, McCain and Thompson: Would make Bush investment tax cuts permanent.

Huckabee: Has called for the elimination of the income tax system and for a consumption tax to take its place. Under his plan, you would be taxed on what you buy, not on what you earn or save. So there would be no investment taxes.

SAVINGS TAX BREAKS

Using the tax code to encourage retirement and other types of savings has a long history, and it's one which at least three of the candidates would like to continue.

Clinton: Would expand the current savers' credit, which currently only goes to low-income taxpayers saving for retirement. She wants to offer a 100 percent matching tax credit for the first $1,000 saved for retirement by married couples making less than $60,000, and a 50 percent matching credit for couples making between $60,000 and $100,000. The credit - which is a dollar-for-dollar reduction of one's tax bill - would be refundable, meaning couples would receive it as a refund if they don't have enough of a tax bill to offset with the credit.

Edwards: Would expand the savers' credit. He would offer a refundable tax credit up to $500 a year in savings for families with incomes under $75,000. Currently you may qualify for an income tax credit up to $2,000 in retirement savings if your adjusted gross income is $25,000 or less ($50,000 or less if you're married filing jointly).

Edwards' tax credit wouldn't be limited to retirement savings, but could apply to savings for college, for a down payment, for starting a small business or for financial emergencies.

He also would offer low-income families an additional $500 refundable tax credit for savings. Additionally, he would allow families to deposit their child tax credits into tax-free savings accounts.

Giuliani: Has said he would expand tax-free savings accounts but offered no details.

Huckabee: Has called for the elimination of the income tax system and for a consumption tax to take its place. Under his plan, you would be taxed on what you buy, not on what you earn or save. So there would be no taxes on your savings.

MORTGAGE TAX BREAKS

Currently, you are allowed to deduct the interest you pay on your mortgage if you itemize your deductions. But since only about a third of taxpayers itemize, homeowners who take the standard deduction don't receive an additional tax break for owning a home the way itemizers do.

Obama: Would create a refundable tax credit equal to 10 percent of mortgage interest. The credit would be available to any taxpayer who has a mortgage and does not itemize their deductions. The addition of a credit means you would get a break on your mortgage interest even if you take the standard deduction. It would be in addition to, rather than instead of, the mortgage interest deduction.

HEALTH INSURANCE TAX BREAKS

All the front-runners have proposed reforming healthcare or at least making some change to the way health insurance is provided. Creating new tax incentives is one piece of their plans to make health insurance more affordable, encourage people to buy it and to encourage them to be more cost-conscious about medical expenses.

Currently, the portion of your premiums paid by your employer on your behalf is excluded from your gross income, meaning it is tax-free compensation to you. If you're buying health insurance on your own, you get no tax breaks for the premiums you pay.

Clinton: Wants to create health care tax credits for small businesses and a refundable "premium affordability" tax credit for individuals buying health insurance so that their premiums never exceed a certain percentage of family income.

Edwards: Has proposed creating a "health care market" of regional, non-profit purchasing pools that offer competing health insurance plans to companies without plans of their own and to individuals who don't have access to a plan at work or through public programs.

Edwards would offer a new tax credit for middle- and lower-income people who buy insurance through a Health Care Market. The amount of the credit would be determined by an income-based sliding scale and the credit would be refundable for those who don't have any income tax liability.

Giuliani: Would allow people who can't get insurance from their employers to exclude from their gross income up to $7,500 in health insurance costs for singles ($15,000 for families) if they buy health insurance on their own.

He also has proposed a separate health insurance credit for low-income Americans.

McCain: Would offer a refundable tax credit of $2,500 ($5,000 for families) to anyone who buys health insurance, whether through an employer or not. That credit would replace the tax-free nature of the portion of your premiums paid by your employer, which would become taxable income to you.

If your policy costs less than the value of the credit, you can deposit the remainder in a health savings account (HSA). HSAs let you save tax-free for medical expenses on the condition that you buy a high-deductible insurance plan to be used for catastrophic medical situations.

Romney: Has said he supports the deductibility of medical expenses, including the cost of health insurance and out-of-pocket expenses for anyone who has a plan that at least provides catastrophic insurance.

He also has called for an expansion of HSAs, which let you save tax-free for medical expenses on the condition that you buy a high-deductible insurance plan to be used for catastrophic medical situations.

Huckabee: Has said he would make HSAs available to everyone, not just those with high-deductible plans. HSAs let you save tax-free for medical expenses.

He prefers to move away from the employer-based system for insurance, but would offer taxpayers a deduction for the health insurance premiums they pay. For low-income taxpayers, they would get a credit instead. A credit is a dollar-for-dollar reduction of taxes you owe, whereas a deduction reduces your taxes by a percentage equal to your top income tax rate.

ESTATE TAX BREAKS

Currently estates worth up to $2 million are exempt from the estate tax. That exemption level will rise to $3.5 million by 2009. In 2010, the estate tax is scheduled to be repealed entirely for one year and then it will be reinstated in 2011 at a $1 million exemption level. The current top tax rate on estates is 45 percent. By 2011, it will increase to 55 percent.

Clinton: Would increase the estate tax exemption level to $3.5 million.

Edwards: Would raise the exemption level to $4 million.

Romney, Giuliani and Thompson: Would eliminate the estate tax.

McCain: Would increase the exemption level to $10 million and tax the portion of an estate above $10 million at a flat 15 percent. To 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.