by William Neikirk
The Democrats' top tax writer in the House unveiled a $1.3 trillion plan Thursday that would cut taxes for millions of middle-income Americans, raise them on the wealthy, and do away with the alternative minimum tax, which is increasingly hitting taxpayers of modest means.
Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, called his proposal "the mother of all tax reforms." Republicans called it the "mother of all tax hikes" and vowed to fight it.
Even if his proposal faces an uphill battle, it is likely to produce the mother of all lobbying efforts on Capitol Hill and become a controversial issue in the presidential race. Rangel said he did not expect passage this year and wanted to see how it would fly in 2008. (Rangel, pictured above.)
Both parties are trying to seize the advantage on taxes, with Democrats accusing Republicans of favoring the wealthy with their tax cuts and the GOP accusing Democrats of raising taxes and harming the economy. Many analysts say that true tax reform will ultimately have to be bipartisan.
"I'm willing to work with any president, no matter who she is," Rangel told reporters in an obvious reference to his favorite candidate, Sen. Hillary Clinton (D-N.Y.). But he said he had not consulted her or any other presidential candidate in writing the bill.
For more, see the rest of the story in today's Tribune:
Presidential candidates in both parties have proposed tax-overhaul plans that range from simplifying the current system to adopting a consumption tax, such as a national sales tax. But congressional Republicans have rallied behind President Bush's tax cuts, calling them a continuing boost to economic health.
House GOP leaders sharply criticized the Rangel plan Thursday and said the costs are higher than the Democrats estimated. Minority Leader John Boehner (R-Ohio) said that raising taxes would "doom our economy, put people out of work, and cost the federal government revenue that is badly needed if we're in fact going to balance the budget."
Treasury Secretary Henry Paulson said the Rangel plan "would dramatically raise taxes in ways that in my judgment would hinder America's ability to compete in the global economy. The proposed new surtax on individual income would burden millions of small businesses and undermine job creation. The corporate proposals will hurt the ability of our businesses and workers to compete in a global economy."
Rudy Penner, former head of the Congressional Budget Office and now at the Urban Institute, a think tank, said the package seemed complex and predicted it would have a tough time passing. "Now, very rich people are giving to Democrats," Penner said. "Now there is a question whether they will tolerate a very large tax increase."
After this year, the plan would repeal the alternative minimum tax (AMT), a levy originally designed to tax the rich but which now falls on many middle-class people because it was not indexed for inflation. The plan would raise the standard deduction and enhance the earned income tax credit for the poor while raising taxes on high incomes. And it would cut the corporate tax rate but end many corporate tax breaks.
Rangel called for Congress to pass his proposal in the next few weeks to "patch" the alternative minimum tax for 2007 so that it doesn't hit another 23 million taxpayers. That proposal alone would cost $47.1 billion over 10 years. The plan would make up for the lost revenue by raising taxes on executives of hedge funds and private-equity managers.
Rangel's long-term overhaul would increase the standard tax deduction for those who don't itemize deductions on their tax returns. For a married couple filing jointly, the bill would boost the standard deduction by $850; for singles and married people filing separately, $425; and for heads of households, $625. About two-thirds of taxpayers now take the standard deduction.
The bill also would expand the number of low-income taxpayers eligible for the earned income tax credit. The maximum qualifying income for those without children would double to $10,900.
"We are not raising taxes," said the gravelly voiced Rangel, a frequent target of Republicans as a liberal tax writer. "We are restructuring the rates of taxes so that at the end of the day 90 million taxpayers will walk away and say, 'I've got a decrease in taxes.' "
Indeed, the plan is revenue neutral, but—unlike Republican tax bills of the past—cuts for middle- and low-income earners would be offset by increases for higher-income people and for corporations.
In exchange for repealing the AMT, the bill would impose a 4 percent "replacement" surcharge on married taxpayers earning at least $200,000, with the actual figure to be determined by a Treasury Department formula. This rate would go up to 4.6 percent for married taxpayers earning $500,000, or $250,000 for singles.
Also, in ending the AMT, the measure would impose limitations on itemized deductions and personal deductions that wealthier Americans claim.
The corporate tax rate would be reduced from 35 percent to 30.5 percent, as suggested by the Bush administration, but Rangel's bill would shut off or limit a number of corporate tax preferences.
In the most controversial move, he proposed to limit the tax breaks that U.S. corporations receive for profits earned on their foreign operations. The bill says that companies could not claim deductions associated with these foreign earnings until they repatriate their income back into the U.S., making it subject to taxation.
Another provision would repeal over eight years the so-called accounting method known as LIFO for last in, first out. This has enabled firms to pay less tax on inventories.
Rangel also called for one-year extensions of a number of tax breaks that will expire at the end of 2007—including the research and development credit.
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Comments
It's been proved time and again that a more progressive tax code is best for our economy. And it's been proved time and again that a more regressive tax code is bad for our economy. These greedy, selfish, Republicans, who claim to love America so much, need to do what's best for America as a whole, not just for themselves. Though I think they all did pretty well in the 90s, they were just p'd off that everyone else did, too. Very patriotic of them.
Posted by: Paul | October 26, 2007 9:36 AM
Again, the Republicans lie. What else is new?
This is not a tax increase. This proposal is revenue neutral. All taxes raised are balanced by cuts in taxes elsewher. This proposal maintains the same revenue stream to the federal government, but redistributes where revenues come from.
It is impossible to have any sort of realistic debate on issues when one side refuses to be honest.
Our inablity to discuss serious issues is crippling this nation.
Posted by: AJF | October 26, 2007 9:57 AM
Its also been proven time and time again that less taxes is good for America- so why don't those greedy selfish democrats who claim to love America do whats right for America
In other words- spare me the typical nonsense that Republicans are selfish- and move on to why or why not this is a good idea
Posted by: Mike | October 26, 2007 10:16 AM
"....This proposal maintains the same revenue stream to the federal government, but redistributes where revenues come from...."
Posted by: AJF | October 26, 2007 9:57 AM
One of the most intellectually lazy posts I have seen.
With the top 50 % of wage earners carrying 96% of the tax burden- and the bottom 50% carrying the rest- where should your socialistic "redistribution " of revenue commitment come from?
When the taxes to corps and small businesses are raised what do you think will happen in your "progressive" tax code utopia...? can you say unemployment?
I own a business- If I want to remain profitable in this competitive market place, my only expenses left to cut should my costs increase are wages, benefits or possibly even jobs..
This is about votes and to give this do nothing congress the appearance of activity..
This is not progressive, smart, or good for anyone DEM or REP.
Posted by: heartburn | October 26, 2007 10:26 AM
"When the taxes to corps and small businesses are raised what do you think will happen in your "progressive" tax code utopia...? "
Talk about intellectually lazy, the proposal would LOWER coporate tax rates from 35% to 30.5%.
I have no problem with honest criticsm of this bill. There's much to be criticized and debated. But let's not lie and call it a tax increase when it is not.
Posted by: AJF | October 26, 2007 10:41 AM
AJF
removing tax breaks is essentially a tax increase.
Redistributing the tax burden- (when the tax burden is already unfairly out of balance) is a tax increase to those who have had the tax burden moved to them..
Because the change is revenue neutral does not mean that no one's taxes increase-
the senator himself "bottom lined" this as a feel good measure when he said;
"We are restructuring the rates of taxes so that at the end of the day 90 million taxpayers will walk away and say, 'I've got a decrease in taxes.' "
-A chicken in every pot-!
Posted by: heartburn | October 26, 2007 11:06 AM
"Redistributing the tax burden- (when the tax burden is already unfairly out of balance) is a tax increase to those who have had the tax burden moved to them."
Finally a Republican who will admit that they want to transfer the burden of taxes from the wealthy to the middle class.
Posted by: AJF | October 26, 2007 1:12 PM
Finally a Republican who will admit that they want to transfer the burden of taxes from the wealthy to the middle class.
Posted by: AJF | October 26, 2007 1:12 PM
AJF-
Nice try.. I never said redistribute anything anywhere..you did. Your response gives you away- you think every solution includes raising taxes for someone..thats progressive?
I am for lowering existing taxes across the board-making the existing tax cuts permanent and in in particular providing relief to the groups that have been paying the bigger share compared..
I am not for just moving money around like a shell game.
Posted by: heartburn | October 26, 2007 1:57 PM
heartburn-
You said that you felt the tax burden was "unfairly out of balance". Forgive me if I thought you wanted to correct something that was unfair. I should have know that you want to perpetuate what you see as unfairness. My bad.
Oh but wait....
"and in in particular providing relief to the groups that have been paying the bigger share compared.."
No, it does seem that you want to you want to shift the burden.
Tell me when you make up your mind, OK?
But at least you now recognize that this proposal is not a net increase in taxes.
Posted by: AJF | October 26, 2007 2:12 PM
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It is impossible to have any sort of realistic debate on issues when one side refuses to be honest.
Our [inability] to discuss serious issues is crippling this nation.
Posted by: AJF | October 26, 2007 9:57 AM
I totally agree. So why aren’t we talking about the rate at which the government spends, loses and wastes money?
Why is it that answers to questions about government finance are always couched in terms of who pays the bill? Why is it never a question of how big the bill is, whether the government is making prudent purchases, or why government agencies are not held to a higher level of accountability for money allocated for their use?
If we didn’t spend, waste and lose so much money, and actually spent some effort to hold the government more accountable for the money given to it, we might not need to debate the tax burden. That’s because a just and efficient government could never justify demanding as much in taxes from anyone.
Reform on pork has been a sick joke. The only reform has been to drive the process underground to keep the porkers in Congress from being seen in the light of day. This has to stop. Secrecy in the earmark and pork process, as is now practiced, cannot be justified.
Neither can there be any justification for the government’s failure to make its agencies account for the loss or theft of up to 25% of the funds allocated to them, or to make heads roll for those losses. Unaccountable government is not a government of, by or for the People.
And then there is Iraq: the black hole of government finance for the 21st Century. Any fiscally responsible person will tell you that, if you can’t afford it, don’t buy it. We need to cut our losses there too.
Thanks for giving us the whole picture so we can have an honest and realistic debate on the issues.
Posted by: John W. | October 26, 2007 2:41 PM
You're welcome John!
Posted by: AJF | October 26, 2007 2:52 PM
You said that you felt the tax burden was "unfairly out of balance". Forgive me if I thought you wanted to correct something that was unfair. I should have know that you want to perpetuate what you see as unfairness. My bad.
Posted by: AJF | October 26, 2007 2:12 PM
You have drawn an incorrect conclusion to my analogy-My analogy was pointing out the gap in logic you had in supporting a redistribution of the tax burden...I do want a correction- my correction is not to move the burden- but to remove the burden.
You are handicapped by the idea that the only solution is to tax some group- the only question being, What group?.. again, where does the progressiveness of your position start?
Posted by: heartburn | October 26, 2007 3:03 PM
"You are handicapped by the idea that the only solution is to tax some group- the only question being, What group?."
Well heartburn, unless you are an anarchist, and want to eliminate government entirely, yes, some group must be taxed.
If some group must be taxed, then it follows that the taxes should be levied where they will do the least harm.
If you place the burden on those with the fewest resources, they are greatly harmed by the taxation.
Those with greater resources suffer less harm by having a portion of their resources taken for the needed taxation.
One person needs the money for food, the other to buy champagne.
Do you deny a burden needs to exist? If you don't who do YOU think it should fall hardest on?
Posted by: AJF | October 26, 2007 3:19 PM
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Posted by: AJF | October 26, 2007 2:52 PM
Sigh.
I was being sarcastic. Then again, you probably know that.
Posted by: John W. | October 26, 2007 3:41 PM
I went to a Republican's fundraiser a few years back (with dark sunglasses on) and he was bragging about how much money he brings home to Illinois, but then went on and on about "tax and spend" Democrats. Nobody else seemed to put the two together.
I also remember a country club holiday party in 03 (when the votes were still being counted) where a well-coiffed lady was showing off her Bush pin (made out of a few carats of real diamonds) and talking about her conversation earlier with Barbara.
They can pay the taxes just fine.
Posted by: DD | October 26, 2007 3:52 PM
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Posted by: AJF | October 26, 2007 2:52 PM
Sigh.
I was being sarcastic. Then again, you probably know that.
Posted by: John W. | October 26, 2007 3:41 PM
And I was just returning the favor.
Posted by: AJF | October 26, 2007 4:11 PM
Do you deny a burden needs to exist? If you don't who do YOU think it should fall hardest on?
Posted by: AJF | October 26, 2007 3:19 PM
Yes unfortunatley no taxes is not an option.
It shouldn't fall hardest on anyone- it should be equally shared based on how much you earn. But it should apply to everyone..
your assumption that taxes should be applied to those who it would do the least harm to- is an amazingly dangerous statement.. who decides who isn't harmed by excessive taxation?
the Government takes WAY too much of our money - these smoke and mirror bills coming from congress do nothing to answer the question " What did you do with the money I gave you?"
Posted by: heartburn | October 26, 2007 5:46 PM
And I was just returning the favor.
Posted by: AJF | October 26, 2007 4:11 PM
Well, I'm glad we can smirk about something anyway.
Posted by: John W. | October 26, 2007 6:18 PM
"your assumption that taxes should be applied to those who it would do the least harm to- is an amazingly dangerous statement.. who decides who isn't harmed by excessive taxation?"
Yes heartburn it IS a difficult decision no doubt. However, that is why it is all the more critical that we can have an open , and HONEST, debate on the merits of various proposals.
As to who makes the decisions, well, as you may have heard,every two years we have elections, during which the people select representatives to go to Washington to serve in the Congress,and in some years the Senate, or the Ppresidency, and make those decisions for them. If the people do not like the decisions their representatives make, they can send someone else the next time around. That is how our Republic works
Posted by: AJF | October 27, 2007 7:30 AM
Well, I can see all you lefties managed to sit down and read the facts on something before commenting on this.
Jerry makes some very good points in his post above, but let me add a few more:
The elimination of LIFO (or as Mark Silva calls it "so-called accounting method known as LIFO for last in, first out.")inventory accounting method. Mr. Silva goes on to state that "this has enabled firms to pay less tax on inventories", which is true. What Mr. Silva does not state, probably because he does not understand, is why. LIFO will match the most current costs of inventory to the revenues derived from the sale of inventory. The matching principle is one of the bedrock principles of accounting. LIFO is one of the three most popular GAAP inventory accounting methods.
The elimination of "lower of cost or market" for inventory valuation in this tax bill once again violates another bnedrock of accounting - conservatism (not the political version). It states that assets, which inventory is one, should be valued at the lower of its cost or its current market value. This assists stockholders in knowing what the assets on theior corporations are worth. A current example is for home builders that are sitting on inventories of unsold homes that may need to write them down to their current market value. Once again, Rangel violates sound accounting prinicples.
In addition, most of you on the left bemoan "corporate welfare". Are the two accounting methods I describe above forms of "corporate welfare"?
How about the portion of the proposal that calls for "extension of railroad track maintenance credit". Is that coroporate welfare to companies like BNSF, Norfolk Southern, etc...?
Posted by: Terry | October 28, 2007 10:00 AM
Well, I can see all you lefties managed to sit down and read the facts on something before commenting on this.
Jerry makes some very good points in his post above, but let me add a few more:
The elimination of LIFO (or as Mark Silva calls it "so-called accounting method known as LIFO for last in, first out.")inventory accounting method. Mr. Silva goes on to state that "this has enabled firms to pay less tax on inventories", which is true. What Mr. Silva does not state, probably because he does not understand, is why. LIFO will match the most current costs of inventory to the revenues derived from the sale of inventory. The matching principle is one of the bedrock principles of accounting. LIFO is one of the three most popular GAAP inventory accounting methods.
The elimination of "lower of cost or market" for inventory valuation in this tax bill once again violates another bnedrock of accounting - conservatism (not the political version). It states that assets, which inventory is one, should be valued at the lower of its cost or its current market value. This assists stockholders in knowing what the assets on theior corporations are worth. A current example is for home builders that are sitting on inventories of unsold homes that may need to write them down to their current market value. Once again, Rangel violates sound accounting prinicples.
In addition, most of you on the left bemoan "corporate welfare". Are the two accounting methods I describe above forms of "corporate welfare"?
How about the portion of the proposal that calls for "extension of railroad track maintenance credit". Is that coroporate welfare to companies like BNSF, Norfolk Southern, etc...?
Posted by: Terry | October 28, 2007 10:01 AM