The economy and taxation formed a key battleground in the race for the White House, with the Republican candidate John McCain proposing to extend all of the temporary tax cuts passed under the Bush administration and cut corporate tax to 25%. However, it was Obama's pledge to "spread the wealth" by increasing tax on the wealthy and large corporations to subsidise tax cuts for a large swathe of low- and middle-income America that helped win the day for the Democratic campaign.

Much has been made of both candidates' tax plans and their probable effects on the US tax burden, government spending and the deficit. Not surprisingly, most analysts on the free market side of the fence have argued that Obama's plan will hinder the economy by increasing tax and regulation on the country's wealth creators and expanding the role of government. Obama however, claims that his plan would reduce taxes as a share of the economy to the level that prevailed under President Ronald Reagan, at 18.2%.

According to Obama, much of this net tax cut can be financed by cutting unnecessary special-interest expenditures. But those who are at the top of the income pile, both wealthy individuals and large corporations, will also contribute through the termination of investment tax breaks and the closure of corporate tax 'loopholes'.

For corporations and wealthy executives, the latest version of Obama's tax plan proposes to: reduce opportunities for international tax planning, including reforming deferral to end the incentive for companies to "ship jobs overseas"; close the offshore pension loophole; close domestic tax loopholes by clarifying the economic substance doctrine and increasing reporting of capital gains, among other measures; eliminate special tax breaks for oil and gas companies, including repealing special expensing rules, foreign tax credit benefits, and manufacturing deductions; tighten tax rules governing CEO pay, and reclassify carried interest as ordinary income.

Obama's plan also outlines how he intends to work with Congress to ensure that the Treasury and IRS "have the tools they need to close down the use of international tax havens for improper tax avoidance or tax evasion." However, Obama has pledged to reward those corporations which play by these proposed rules and retain investment and earnings in the United States with a cut in corporate tax, although the precise nature of this cut remains unspecified.

Money saved though the closure of corporate tax loopholes will also be used to provide new incentives for small businesses and start-ups, including the elimination of capital gains tax. The President-elect would also permanently extend the research and development tax credit, offer a new refundable 50% health tax credit on employee premiums paid by employers, and pump more money into schemes that promote renewable energy.

For individual taxpayers, Obama intends to retain those aspects of the temporary tax cuts passed under President Bush which benefit families earning less than USD250,000 per year, but eliminate those which benefit wealthier taxpayers. Also, he intends to increase the top two income tax rates and restore capital gains rates to their pre-2001 levels for those on high incomes.