November 3, 2008 How the candidates' tax plans will impact the economy Play video

(Peter Howe, NECN) - John McCain: "We need to cut the business tax rate in America. We need to encourage business now. Of all the times in America we need to cut people's taxes.''

Barack Obama: "I think tax policy is a major difference between Senator McCain and myself. We both want to cut taxes. The difference is who we want to cut taxes for.''

If you take what the candidates say at face value, that is a true statement by Senator Obama. As this endless campaign finally comes to an end, who's being promised tax cuts is a key difference.

Or put another way, "where the concentrated effect of the tax cuts will fall," as explained by Richard Parker, who teaches on "presidents, politics and economic growth" at Harvard's Kennedy School. "This stuff has been looked at very carefully and it's quite clear that disproportionately a much larger percentage of the tax benefits would go to the top 1 percent of income earners under the McCain plan," Parker said.

McCain would make permanent the 2001-03 Republican tax cuts. Impose a 15 percent tax on estates over $5 million. Raise dependent exemptions by over 60 percent and cut long-term capital gains rates to 7.5 percent in 2009-10 Obama would restore 36 and 39 percent tax rates for both individuals making over $200,000 and couples over $250,000, and a higher estate tax, 45 percent on estates over $3.5 million. But he'd end income taxes for seniors earning under $50,000, and offer the working poor an earned income

Business taxes are another big difference. "The fact is,'' McCain said in the third presidential debate, "businesses in America today are paying the second highest tax rate of anywhere in the world.'' McCain would cut top corporate rates from 35 percent to 25 percent and provide an immediate tax deduction for equipment and technology purchases .. and 10 percent credit for research and development spending. Obama promises "a tax credit for every company that's creating a job right here in America.'' It'd be worth $3,000 per employee for new jobs in 2009-10. Obama also promises to impose windfall profit taxes and close loopholes for oil and gas companies, and give small businesses a 50 percent health insurance credit.

Of course the real question is with the cost of the Wall Street bailout and a deficit roaring past $500 billion next year can either candidate do any of the tax relief they're talking about?

Without any changes, current tax policy would add $2.3 trillion to the national debt by 2018. Obama's proposals $5 to $6 trillion, McCain's $7 to nearly $11 trillion, depending on whether you tallly candidates' policy statements or what they have actually said on the stump, according to the Tax Policy Center, a non-partisan group backed by the Urban Institute and the Brookings Institution.

Now we're down to just hours before we know which president, and which tax plan, we get ... and 2 1/2 months before we know what the economy will allow Washington to consider affording by way of tax cuts.

The last official estimate for the U.S. budget deficit for the fiscal year that began October 1 and ends next September was $482 billion. At about 3 percent of total U.S. economic output, that's less bad than some deficit years in the 80s and 90s. But that was a late July estimate, before the economy got so much worse, the stock market plunge killed capital gains tax collections, and the U.S. government began pouring billions into shoring up banks and financial businesses.