Redstate

By horaceox Posted in Archived — Comments (3) / Email this page » / Leave a comment »

House Ways & Means Chairman Charlie Rangel outlined his comprehensive tax overhaul today. I haven't (and won't) read the actual bill, but the outline is as follows:

On individual taxes, the heart of his plan calls for eliminating the alternative minimum tax — which was originally created to prevent millionaires from taking too great advantage of tax breaks but now touches people with upper middle incomes and is poised to affect tens of millions of families with incomes as low as $50,000 a year.

Eliminating the alternative tax would reduce projected revenue by almost $800 billion over the next 10 years, according to Congressional estimates.

Mr. Rangel’s bill would also expand some tax breaks for middle- and low-income people. It would increase the standard deduction, at a cost of $48 billion over 10 years. And it would widen the earned- income tax credit, which primarily benefits working single parents with low incomes, to include more low-income workers who do not have children. That would cost $29 billion over 10 years.

To offset the cost of those reductions, the bill would impose a new “replacement tax” for the top 10 percent of income earners who would have otherwise had to pay the alternative minimum tax.

The replacement tax would not apply to couples with incomes as low as $200,000, but aides to Mr. Rangel said many people with incomes as high as $500,000 would still end up with at least slightly lower taxes than under current law.

Mr. Rangel’s plan would reduce the top corporate rate to 30.5 percent from 35 percent now, costing an estimated $364 billion over 10 years.

To make up for that lost revenue, the bill would eliminate a variety of tax breaks — many of them ones business groups fought hard to achieve in a sprawling corporate tax measure just three years ago.

Mr. Rangel’s biggest revenue-raiser would come from eliminating a special tax break on profits from domestic manufacturing — a provision that Democrats championed in 2004 over the opposition of Mr. Bush.

But even if the administration agrees with that idea, it is likely to oppose provisions that would make it harder for American companies to escape income taxes on profits from their foreign subsidiaries. Those provisions would raise $106 billion over 10 years, but they affect tax breaks that provide major benefits to the pharmaceutical industry, international banks and globe-spanning conglomerates like General Electric.

Even as a tax hawk, I think this is worthy of some serious consideration. First, there are actual commendable aspects to the plan. Certainly the flattening of the corporate tax structure is something that should be warmly received, though the devil will be in the details of what deductions are eliminated. Similarly, abolishing the AMT is something that conservatives should unite against.

Of course, the catch is that it raises taxes on the top wage earners and the most productive members of society. It essentially does the opposite of the corporate tax reform; it makes the tax code more progressive rather than flatter.

This probably makes it a non-starter from my viewpoint. But if I am playing devil's advocate, it is this. If Hillary wins in 2008 and Dems expand their Senate majorities significantly, both of which are not unlikely possibilities, the tax breaks for top wage earners are toast. It becomes a question of what those tax breaks are going to go for; they can only be spent once. Personally, if taxes are going to be raised on the "rich" I'd rather see them go to corporate tax reform, middle class tax cuts, and elimiation of the AMT than to government-funded health care or whatever other transfer payments Democrats can dream up.

I don't think I can support Rangel's reform, but I do think it is worthy of discussion.