Obama vs. Romney: 6 key differences on taxes, regulation

When GOP presidential candidate Gov. Mitt Romney chose Rep. Paul Ryan of Wisconsin as his running mate, pundits salivated over the idea that the campaign would be transformed to be one of ideas rather than insults.

It only took a few days before that was exposed as wishful thinking, but that didn’t change the fact that the Romney-Ryan vision of how the nation’s tax and investment laws should be shaped offers a stark contrast to the one presented by President Barack Obama and Vice President Joe Biden.

Much has been made about various aspects of the candidates’ budget plans, with a particular emphasis on the fate of Medicare. While all the details can be tough to come by, it’s possible to divine just what a win by each side might mean to investors.

Here, then, is AdvisorOne’s comparison on six key tax and regulation categories:

1. Investment Income

The battle over the rate at which capital gains are taxed often plays out along what sounds like class lines. Many say keeping them low helps the wealthy at the expense of the middle class because they will pay a disproportionate share. Others say low tax rates on the wealthy help create jobs.

Obama has proposed raising the tax on long-term capital gains from 15% to 20%. He would maintain the current rates of 0% and 15% on qualified dividends and long-term capital gain for couples earning less than $250,000. He would maintain the 3.8% Medicare tax on long-term capital gains that is scheduled to take effect in 2013.

Romney proposes maintaining the 0% and 15% rates on qualified dividend and long-term capital gains. He would eliminate taxes on capital gains, dividend and interest for taxpayers with adjusted gross income below $200,000. Romney would eliminate the 3.8% Medicare tax on capital gains.

2. Income Taxes

Income tax rates are another area of contention that exposes the split between the left and right.

Under the Obama plan, those couples earning more than $250,000 a year would see their rate move back to 39.6% after the expiration this Dec. 31 of the Bush-era tax cuts that lowered it to 35%.

Romney calls for setting the highest tax rate at 25% and the lowest at 8%, down two percentage points from the current level. Ryan’s plan offers a clear choice when compared to Obama’s. He calls for creating two tax rates, 10% and 25%, to replace the six that currently exist.

Tax preferences are another matter. The Republicans would pay for lowering ordinary tax rates by eliminating certain deductions and credits. However, they have not said which of these would be targeted.

The Democrats call for a cap of 28% on itemized deductions as well as on health insurance provided by employers, municipal interest, retirement plan contributions and student loan deductions and expenses for higher education.

3. Estate and Gift Taxes

This is another area that exposes the rift between the two parties’ vision for the future of the country.

The president’s plan would raise the estate and gift taxes to 45%, the pre-2009 level, while proposing a $3.5 million exemption.