The Banks Family |
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Base Plan (current) | |
| According to the Tax Policy Center, a non-partisan project of the Urban Institute and Brookings Institute, the Banks family pays 26.6% of their annual income of $288,713 in federal taxes. The capital gains tax rate is currently 15%. | |
 | Obama Plan |
| The Tax Policy Center's review of the Obama for President tax proposals, as provided by the campaign's economic advisors, indicates a 1.3% reduction in the average federal tax rate for families with children, earning annual income between $200,000-500,000. Obama's economic advisors have been non-specific, but indicate that an increase in the capital gains tax rate should be expected.
The Obama campaign has also stated their intention to raise taxes, in a decade or more, on those people with incomes of more than $250,000 a year to provide stability to the Social Security system. For our Obama Plan demonstration, we have set the Banks family's average federal tax rate to 25.3% and the capital gains tax rate to 25%. We have stepped up the average federal tax rate to 26.3% starting in 10 years. |
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 | McCain Plan |
| The Tax Policy Center's review of the McCain for President tax proposals, as provided by the campaign's economic advisors,
indicates a 2.4% reduction in the average federal tax rate for families with children, earning annual income between $200,000-500,000.
For our McCain Plan demonstration, we have set the Banks family's average federal tax rate to 24.2%. We have left the capital gains tax rate at 15%. |
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| Source: 1 Urban Institute and Brookings Institution. Tables T08-0202 and T08-0181.
Tax Units with Children.
The Tax Policy Center (TPC) is a joint venture of the Brookings Institution and the Urban Institute, based in
Washington, D.C. The Center is mostly composed of tax lawyers, accountants and former politicians; their main
focus is to provide accessible analysis and facts about tax policy to policymakers, journalists, citizens,
and researchers.
2 Read Senator Barack Obama's comments on the capital gains tax rate: CNBC's "Closing Bell" Interview on March 27, 2008. 3 AARP: Wealthiest would pay more under Obama's tax plan |
Base Plan (current) | |
| As of August 2008, the consumer price index (CPI), the key measure of inflation is 5.4%. For our base plan have set the default inflation rate to 4.5%; this number is the average inflation rate from 1960-2007, for those years when a Republican was president. For a historical perspective, the average CPI from 1913-2007 has been 3.42%. | |
| Obama Plan |
| For our Obama Plan demonstration, we have set the default inflation rate to 3.81%; this number is the average inflation rate from 1960-2007, for those years when a Democrat was president. | |
| McCain Plan |
| For our McCain Plan demonstration, we have set the default inflation rate to 4.5%; this number is the average inflation rate from 1960-2007, for those years when a Republican was president. | |
| Note: For a more recent perspective - consider the average inflation rate during Bill Clinton's presidency was 2.61 (1993-2000). The average inflation rate during George W. Bush's presidency, excluding 2008, has been 2.69 (2001-2007). | |
| Source: 1 Current inflation rate based on data from the U.S. Department of Labor
Bureau of Labor Statistics.
2 Historical inflation rates based on data from the Economic Report of the President. TABLE B-63 - Changes in special consumer price indexes, 1960-2007. 3 Slate.com: Politicians Lie, Numbers Don't. |
Base Plan (current) | |
| Currently, the default growth rate for investments is set to 6.59%. This number is the Dow Jones Industrial Average's average total return performance for the last 5 years. The Banks family will invest all the money made available by lower taxes in college and retirement savings. | |
| Obama Plan |
| For our Obama Plan demonstration, we have set the default growth rate on investments to 10.85%; this number is the historical average return of the Dow Jones Industrial Average when a Democrat was president. | |
| McCain Plan |
| For our McCain Plan demonstration, we have set the default growth rate on investments to 8.25%; this number is the historical average return of the Dow Jones Industrial Average when a Republican was president. | |
| Note: Over the past 60 years, the average Dow Jones Industrial Average annual rate of return while a Democrat was president has been 15.26%, more than six percentage points higher than the 9.01% rate of return when Republicans have held the presidency. The average return on the Dow Jones Industrial Average during Bill Clinton's presidency (1992-2000) was 19% per year, while the return under George W. Bush's presidency has been 0.22%. | |
| Source: Jeremy Siegel, currently the Russell E. Palmer Professor of Finance at the
Wharton School of the University of Pennsylvania, has written and lectured extensively
about the economy and financial markets.
1 Siegel: Are Republicans or Democrats Better for the Stock Market? 2 Siegel: Which Party is Better for Stocks? 3 Forbes: Presidents And The Stock Market |
Base Plan (current) | |
| The Banks family wants their children to attend college. 34% of all money saved from reduced taxes will go towards college savings. | |
| Obama Plan |
| Obama plans to make college affordable for all Americans by creating a new American Opportunity Tax Credit. This credit
ensures the first $4,000 of a college education is completely free for Americans. There is speculation that the American
Opportunity Tax Credit would not be available for those families earning more than $250,000 a year.
For our Obama Plan demonstration, the Banks family will not receive a college credit incentive; no changes will be made. |
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| McCain Plan |
| McCain's plan for higher education includes strategies such as simplifying both Federal financial aid and higher
education tax benefits; however, the Republican candidate does not outline a specific change in fiscal policy.
For our McCain Plan demonstration, no changes will be made. |
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| Source: You can read more about each candidate's proposals on their websites:
1 Barack Obama 2 John McCain |
Base Plan (current) | |
| The Banks family needs to save for retirement. Up to this point, like many families, the Banks have not been able to save for their twilight years. For the purposes of our demonstration, 66% of all money saved from lower taxes will go towards retirement savings. | |
| Obama Plan |
| The Obama for President campaign has a plan to increase retirement savings by creating a savings match for
low and middle-income Americans. This plan will match 50% of the first $1,000 of savings for families that earn
less than $75,000.
For our Obama Plan demonstration, because the Banks family has an annual income that exceeds $75,000, no changes will be made. |
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| McCain Plan |
| The McCain for President campaign does not outline a specific change in fiscal policy for retirement.
For our McCain Plan demonstration, no changes will be made. |
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| Source: You can read more about each candidate's proposals on their websites: 1 Barack Obama 2 John McCain |
The Banks family doesn't have much to worry about. With their current income and savings rates, both plans give the Banks the opportunity to meet their financial goals and afford a comfortable lifestyle for many years. The McCain Plan starts out with a distinct advantage, since average federal tax rates are 1.2% lower and capital gains tax rates are 10% lower than rates under the Obama Plan. This tax savings is not a giant sum, but on income of almost $300,000, the Banks would have money immediately available for investment and savings. However, while taxes get all of the attention, the real keys to a bright financial future for the Banks are lower inflation, wage growth and stable markets. Since the McCain campaign offers no real difference from current fiscal policy, the benefits of lower taxes are eaten away by inflation exceeding wage growth. At this point, the Obama Plan makes a strong case. With moderately lower inflation under the Obama Plan, the net effects of lower taxes under the McCain plan are minimized. If historical investment rates of return hold true under the next administration, the improved markets under the Obama Plan give it a distinct advantage. Under the Obama Plan, the improved markets along with the lower inflation allow substantial compounding of investments over time. Year after year, this growth of investments provides greater wealth to the Banks family, in comparison to the McCain Plan. It is surprising how little of a difference a 10% increase in the capital gains tax under the Obama Plan makes to the Banks family. Since a majority of their savings is held in tax-free college savings accounts and tax-deferred retirement savings accounts, the increased taxation only slightly reduces the money available for future investment and wealth building. |
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Review the family's current financial condition and see how their financial plan could be affected by the next president. Let's See Forecasts
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The family's Let's See charts are interactive. The forecasts illustrate information in the family's financial plan including incomes, assets, debts, and expenses.
Click anywhere on the chart to see the legend. The legend includes the name and annual values of each item in the forecast.
Each family has three plans: a Base Plan (the family's current finances) and two "What If" plans: an Obama Plan and a McCain Plan.
Compare any two financial plans side-by-side by clicking the Compare Plans button. Select the plans you want to compare using the Select Plan drop-downs at the bottom, right of the screen.
Use the left navigation to see every individual item in the financial plan - from debts and annual expenses, to retirement and college savings, weddings, vacations and everything in-between.
You can edit each of the family's three financial plans. You can also create a new plan for the family and start by making a copy of one of the current plans.