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Taxes are going to be a major issue this year. The budget deficit, while coming down fairly sharply so far in this fiscal year, is still very high and will probably still be close to $1 trillion in Fiscal Year 2012 (which ends 9/30/12).

The major GOP candidates have been arguing against raising taxes on the top income brackets, since they see them as the “job creators”. Indeed according to the non-partisan Tax Policy Center (TPC), most of the major GOP candidates have been proposing major tax cuts for the top of the income distribution, mostly through the reduction or elimination of taxes on Capital Gains, Dividends and Estates. They also tend to move to flatter tax rates while eliminating many deductions.

The TPC has analyzed the proposals by Mitt Romney, Newt Gingrich and Rick Perry. It also analyzed the 9-9-9 proposal of former Candidate Herman Cain. It has yet to analyze the proposals of Rick Santorum, Ron Paul or Jon Huntsman; however, in broad outline, their proposals are similar, if not more generous to the top income earners than the three that have been analyzed in detail.

In contrast, President Barack Obama, in his proposal to the Joint Tax Committee, wants to raise taxes on the top of the income spectrum. Unfortunately, the numbers for the Obama plan are for calendar year 2013, while the proposals for the GOP candidates are all for the effects of calendar year 2015.

Both Newt and Perry would offer an option of staying with the old tax code or going with the new system. The analysis assumes that if a taxpayer would pay less under the new system that they would use the new system, but others would stick with the current one. The changes are relative to current policy, not relative to current law. Current law assumes that the Bush Tax cuts expire starting in 2013.

The average change in taxes for the top 1% are expected to be a drop of $340,203 under Newt’s plan, $283,903 under Perry’s plan and $82,188 under Mitt’s plan. Under the Obama proposal, taxes on the top 1% would increase $87,173.

At the very top of the distribution (the top 0.1%) the differences are even more extreme. Newt’s plan would offer an average tax cut of$1.89 million and Perry $1.52 million. Mitt offers a more moderate, but still very significant $464,005 tax cut. Obama would increase their taxes by $478,590.

The middle of the income distribution (the third quintile) would also see tax reductions under all four plans. Newt is by far the most generous, with a $1,246 average cut, while Mitt would provide a $138 cut. Both Obama ($19) and Perry ($13) would offer very minor tax cuts to the middle of the income distribution. At the very bottom of the income scale (first quintile) Mitt ($157) and Perry ($160) would increase taxes, while Obama’s proposal would leave them virtually unchanged ($1 less on average) and Newt would offer a relatively small cut of $63.

With taxes being cut, either the tax cuts would have to cause economic growth to soar or more spending cuts would have to be found to close the budget deficit. What do you think: Should taxes on the highest income people in this country go up or down?

Dirk Van Dijk writes for Zacks Investment Research market strategy.

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