Congressman Rangel Offers $1 Trillion in Tax Changes

Congressman Rangel Offers $1 Trillion in Tax Changes -- House Ways and Means Chairman Charles Rangel (D-NY) has offered the US voters what he calls "the mother of all tax reforms." He wants to move $1 trillion of the American tax burden. The bill he has offered isn't going to get out of committee without changes, and it probably won't get passed until 2008 if at all. But it does frame the tax policy debate for the Democrats and steals some of the Republicans' clothes as the party of lower taxes.

For individual taxpayers, Mr. Rangel wants to repeal the Alternative Minimum Tax [AMT], increase the standard deduction and provide more tax credits to low income taxpayers. The AMT was instituted 40 years ago to catch wealthy taxpayers who were using the tax code to avoid taxes (not evade, which is illegal, but merely minimize their tax bill). It has never been indexed for inflation, so it is now a burden on a lot of people who lack the disposable income of the superwealthy of 1970. A boost of $425 for a single taxpayer or $850 to the standard deduction isn’t worth much, a couple of hundred less in taxes, but it helps. A boost to the earned income tax credit for the working poor is probably the most effective way to help them, provided the credit is refundable (meaning they can collect even if they don’t make enough to pay taxes).

There is a provision to increase taxes on some individuals. Mr. Rangel wants to impose a 4% income tax surcharge for people whose adjusted income (not gross) is $100,000 or more ($200,000 for joint filers). The Tax Policy Center says that, with the abolition of the AMT, most who have adjusted incomes of under $500,000 would benefit, as would the US Treasury. Getting rid of the AMT would cost $800 billion and the surcharge would bring in $832 billion. People with $500,000 adjusted per year will bitch and moan, but they can use their silk handkerchiefs to dry their eyes.

On the corporate side, there are some cuts as well. Mr. Rangel wants to cut taxes on corporations from 35% to 30.5%, a significant measure that could be right out of the GOP’s platform. Lower taxes result economic growth, usually. Also, lower tax rates diminish the need to avoid or evade taxes. Companies will duck a 90% tax, and gladly cough up 2%. The question is where do they stand on 30.5%?

Of course, what the Chairman giveth, the Chairman taketh away. He wants to get rid of last-in, first-out [LIFO] accounting for inventory. The Wall Street Journal said, “Lifo allows the value of goods held in inventory to be recorded at current prices, which reduces the taxable gain. Critics of LIFO say the method is a tax dodge that lets companies deduct costs they never incur. Lifo supporters say repealing it amounts to a big tax increase that many companies cannot afford.” Both are correct. Mr. Rangel also wants to reduce the number of corporate tax deductions, which is exactly how the GOP sold the Reagan tax cuts – lower rates paid for by fewer deductions. And he wants to give the IRS more leeway in taking on phony transactions that cut taxes without actually creating any economic value.

All told, it’s more than enough to get the debate started.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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