Your income taxes: What the candidates want

Leading presidential candidates have big ideas for how to change your income tax bill.

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By Jeanne Sahadi, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Every presidential candidate bemoans something about income taxes: they're unfair, they're too complex, they hinder economic growth, you name it. And every candidate is sure their proposals can set things right and still result in green glory for the Treasury.

Their opponents, of course, disagree.

Those who want lower taxes for everyone - a position the leading Republican candidates have taken - contend that lower taxes generate economic growth and that growth, in turn, generates more tax revenue. Should the budget get out of whack, they say, spending cuts are the answer.

Critics of that approach claim the low-tax proponents are not addressing the increased budgetary pressures in the years ahead, including AMT reform, Social Security and Medicare obligations, and the continuing costs of war, among them.

Those who want to restore higher taxes on top earners and big investors - a position the leading Democratic candidates have taken - claim those groups aren't paying their fair share and were the ones most handsomely rewarded by the Bush tax cuts. And, they contend, it's not fair to try to meet the fiscal burdens ahead on the backs of middle- and low-income taxpayers, either by cutting spending on programs they rely on or raising their taxes.

Those who do not want higher taxes note that those in the top 1 percent of taxpayers (those making more than $250,000) - already pay roughly 40 percent of all federal income tax revenue collected, while those in the top 0.5 percent (those making more than $500,000) pay close to 30 percent of all income tax revenue. Taxing them more, critics say, may have the inverse effect of lowering federal tax receipts because they will seek more ways to shelter their money from taxes.

Here are some of the proposed income tax changes the leading Democratic and Republican candidates have put forth so far. 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.

Clinton: Has proposed allowing portions of the Bush tax cuts expire for those making more than $250,000 while preserving them for everyone else. In addition, she would reduce certain tax exemptions for those making more than $250,000.

Clinton has also suggested limiting the amount of tax-free compensation high-income employees receive from their employers to help pay for health insurance.

She would also raise the tax rate on the portion of a private equity and hedge fund manager's compensation known as "carried interest." Currently it is taxed as capital gains and therefore subject to a much lower tax rate (15 percent) than if it were taxed as ordinary income. (Here's a closer look at the carried interest debate.)

Clinton supports reforming the Alternative Minimum Tax, but she's offered no specifics, telling the Wall Street Journal "I'm not going to dictate how it should be done because there's a lot of horse-trading going on here."

See what new tax breaks Clinton has proposed.

Obama: Wants to eliminate income taxes for seniors making less than $50,000.

Obama favors letting the Bush tax cuts expire for those making more than $250,000.

He also would raise the tax rate on the portion of a private equity and hedge fund manager's compensation known as "carried interest." Currently it is taxed as capital gains and therefore subject to a much lower tax rate (15 percent) than if it were taxed as ordinary income. (Here's a closer look at the carried interest debate.)

See what new tax breaks Obama has proposed.

Edwards: Would repeal the Bush tax cuts for households with more than $200,000 in income.

He would also tax all of a private equity and hedge fund manager's compensation as ordinary income. Currently the portion of it known as "carried interest' is taxed as capital gains and therefore subject to a much lower tax rate (15 percent).

See what new tax breaks Edwards has proposed.

Giuliani: Favors making the Bush tax cuts permanent and lowering corporate tax rates. He has indicated he may like to lower marginal rates further.

When it comes to the AMT, Giuliani has said he would index income exemption levels to inflation to protect middle-income families from being subjected to the "wealth" tax, which disallows a number of popular tax breaks that are used under the regular income tax code.

See what new tax breaks Giuliani has proposed.

Romney: Has said he favors making the Bush tax cuts permanent and lowering corporate taxes. He has also promised to oppose any effort to increase taxes as president.

He also has proposed eliminating the tax on interest, capital gains and dividends for taxpayers with adjusted gross incomes under $200,000.

McCain: Has called for a simpler, fairer tax code and favors eliminating the Alternative Minimum Tax.

He also has said he will work to keep taxes low and supports making the Bush income and investment tax cuts permanent.

See what new tax breaks McCain has proposed.

Thompson: Has proposed making permanent all of the Bush tax cuts, abolishing the alternative minimum tax and the estate tax, and lowering corporate income tax rates.

Thompson also has proposed giving taxpayers a choice: to pay under the regular federal income tax code or to opt for an alternate flat-tax system. The alternative option would have just two income tax rates instead of the current six: 10 percent for taxable income up to $50,000 ($100,000 for joint filers); and 25 percent for income above these amounts. There would be no credits or deductions except for two: the personal exemption, which would be increased to $3,500; and the standard deduction, which would be increased to $12,500 ($25,000 for joint filers). Capital gains and dividends would be taxed at 15 percent.

Those levels would effectively exempt a married couple with two dependents from taxes on the first $39,000 of household income. So a family of four with gross income of $150,000 would pay a tax bill of $12,750. Here's the math: the first $39,000 would be tax-exempt, the next $100,000 would be taxed at 10 percent and the remaining $11,000 would be taxed at 25 percent.

If that same family itemized their deductions under the current code and were protected from the Alternative Minimum Tax by a patch, which lawmakers have typically put in place to prevent non-wealthy taxpayers from having to pay the wealth tax, they would owe roughly $17,600, according to Len Burman, director of the Tax Policy Center.

In its preliminary analysis of the Thompson plan, the Tax Policy Center found every income class would pay less in tax, but groups making between $100,000 and $500,000 would see the biggest drop in their average federal tax rate.

In terms of revenue, the analysis estimates that the plan could reduce federal tax revenue by between $6 trillion and $7 trillion over 10 years, depending on whether everyone opts for the alternate system or not.

See what new tax breaks Thompson has proposed.

Huckabee: Supports getting rid of the income tax system and replacing it with what's been dubbed the "Fair Tax." That tax would raise federal revenue by way of a national sales tax. That is, you would pay federal tax on what you spend rather than on what you earn, save or invest.

All taxpayers would receive a monthly check equal to the amount of tax someone at the poverty line would pay. That would ensure no one pays tax on essentials and protects those living at or below the poverty line from paying taxes. For everything else you purchase, you would end up paying what works out to be a 30 percent tax on top of the price. So for something that costs $1 you would pay $1.30. That extra 30 cents represents 23 percent of the final purchase price ($1.30), which is why you will hear Fair Tax proponents say that the tax rate under the Fair Tax is just 23 percent.

In any case, some analyses of the plan suggest that in order for the Fair Tax to raise as much revenue as the current tax system, the sales tax rate would have to be considerably higher.

While the Fair Tax would offer some protection for low-income people, it could bear down most heavily on the middle class, critics say, since they spend a bigger percentage of their income than do the wealthy, for whom critics say the Fair Tax would amount to a large tax cut.

Huckabee has come under criticism from tax-cut advocates for increasing taxes during his time as governor of Arkansas. The nonpartisan FactCheck.org, a program of the Annenberg Public Policy Center of the University of Pennsylvania, examines Huckabee's tax record and his critics' claims that he's not a tax cutter.

See what new tax breaks Huckabee has proposed.  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.