McCain vs. Obama: The story on taxes

— -- In his acceptance speech at the 1984 Democratic convention, Walter Mondale promised to reduce the budget deficit by raising taxes. He later went on to lose every state but his home state of Minnesota and Washington, D.C.

It's not surprising, then, that despite a ballooning budget deficit and a recently enacted $700 billion financial bailout, John McCain and Barack Obama have pledged to lower taxes for millions of Americans.

McCain wants to extend the Bush administration's 2001 tax cuts, double the personal exemption taxpayers can claim, and lower corporate tax rates.

Obama wants to roll back some of the tax cuts for the wealthiest Americans and increase corporate tax rates, while reducing taxes for low- and middle-income families.

This week, both candidates proposed temporary tax cuts designed to help Americans cope with the financial crisis, which has sharply reduced the value of their retirement savings. McCain wants to cut the capital gains rate in half, reduce the tax on withdrawals from retirement savings to 10%, and waive a rule that requires seniors to start taking withdrawals from tax-deferred retirement savings at age 70½. Obama would permit savers to take penalty-free hardship withdrawals of up to $10,000 from their 401(k) plans and individual retirement accounts in 2008 and 2009. Both candidates have proposed suspending taxes on unemployment benefits.

But whoever takes office on Jan. 20 will confront a brutal fiscal reality. The Congressional Budget Office estimates that the nation's debt will swell to $2.3 trillion by 2018. The non-partisan Tax Policy Center estimates that Obama's tax package would add $3.5 trillion to the total, while McCain's proposals would add $5 trillion.

Douglas Holtz-Eakin, McCain's senior policy adviser, says McCain's tax cuts would create more jobs. "The centerpiece of Sen. McCain's approach to deficit reduction is to get the economy going," he says.

Brian Deese, Obama's deputy economic policy director, says Obama has "put together a package of pro-growth tax cuts aimed to help middle-class families who are struggling the most in the current economy."