McCain Beats Obama On 401(k)s

New York — How might your 401(k) vote for president? To find out, try the revealing calculator on the website of Americans for Tax Reform. This device considers the value of your investment plan and then estimates how your money would fare, depending on whether Barack Obama or John McCain wins tomorrow’s election.

— Take, for instance, a 401(k) with a $121,202 balance — equal to the average 401(k) at close-of-business 2006, according to the Employee Benefits Research Institute. Under Obama, such an account would shrink to $114, 293. But under McCain, it would grow to $177,076.

— How about a 401(k) bearing $66,650, the median value at year-end 2006? It would fall to $62,851 under Obama, but rise with McCain to $97,376.

— Lastly, AFTR’s Tax Policy Director, Ryan Ellis, reckons that a typical 401(k) absorbs a monthly deposit of $450. It would wane to $424 under Obama, but wax to $657 with McCain in command.

Why are the assets in these three scenarios predicted to sag 5.7 percent if Obama wins, but soar 46.1 percent if McCain prevails tomorrow night?

The key distinction is public policy.

Obama and McCain promote vastly different tax proposals which, all else being equal, will have an enormous impact on financial-market performance. Rutledge Capital, which prepared the ATR calculator’s estimates, incorporated both nominees’ tax agendas into its figures.

Obama hopes to hike the capital gains and dividend taxes by one third, from 15 percent today to 20. He would maintain the current corporate tax at 35 percent — Earth’s second highest overall business tax, exceeded only by Japan’s 39.5 percent commercial levy. Obama also would keep the IRS’ stultifying depreciation tables, which businesses must use to write off major capital-equipment purchases gradually across multiple years.

McCain envisions a far more business-friendly environment. He would halve the 15 percent capital gains and dividend taxes to 7.5 percent. The 35 percent corporate tax would tumble to 25 percent — a level comparable to average business taxes across Europe. A 25 percent U.S. corporate tax would be more attractive than analogous levies in France (38.4 percent), Canada (33.5), Germany (30.2), or Great Britain and Mexico (both 28). McCain’s corporate tax cuts should lure foreign capital here, like coins to a vacuum cleaner.

Finally, McCain would retire the mind-numbing depreciation tables and let companies expense their capital purchases in year one. Most enterprises subsequently would buy such items when it made business and economic sense to do so, not primarily to obey complex IRS timetables.

Like most things, money tends to perform best when it is treated nicely. ATR’s 401(k) Calculator confidently predicts what should be intuitive: Americans’ investments, like the general economy, will wither beneath Barack Obama’s inclement tax regime, but blossom in the sunlight of John McCain’s far-lighter tax load.