Issue of the week: Rangel puts tax reform on the agenda

Rep. Charlie Rangel just fired “the opening salvo in the debate on tax reform,” said John Fout in TheStreet.com. The New York Democrat, who is chairman of the taxwriting House Ways and Means Committee, last week proposed what he called “the mother of all tax reforms.” Designed to be “revenue neutral”—that is, to leave the total amount of tax revenue unchanged—Rangel’s plan offers “a hefty reduction in the corporate tax rate” and lowers taxes on the middle class. It would also eliminate the Alternative Minimum Tax, a 1960s-era levy that was supposed to hit only the wealthy but is snagging a growing number of middle-class taxpayers. He’d pay for those cuts by socking wealthy taxpayers with a surcharge and taxing the earnings of hedge-fund and private-equity managers at ordinary income rates, instead of the 15 percent capital-gains rate. Ohio Republican Rep. John Boehner called Rangel’s plan “the mother of all tax hikes,” and said it would destroy jobs, hurt small businesses, and ultimately raise taxes on every American. Democrats, for the most part, tried to change the subject.

That’s because Rangel’s plan “has put Hillary Clinton and other high-profile Democrats on the spot,” said Glenn Thrush in Newsday. The Republican National Committee was quick to tie the Democratic front-runner to one of her most vocal supporters, labeling the proposal “the Rangel/Clinton plan.” In reality, though, “Clinton is, at best, lukewarm to the idea and is highly unlikely” to support it. But Rangel’s proposal is also “putting Republicans in a bind,” said Alison Fitzgerald in Bloomberg.com. By linking the repeal of the AMT to higher taxes on hedge-fund managers, Rangel has presented Republicans “with the politically painful options of voting for higher levies on wealthy investors or hurting middleclass voters.” That, complained GOP strategist Terry Holt, is “an awful choice.”

Maybe, but the proposal itself is worse, said Kevin Hassett, also in Bloomberg.com. Rangel’s package of “reforms” would raise taxes “by a whopping $3.5 trillion over the next 10 years,” according to Louisiana Rep. Jim McCrery, the top Republican on the Ways and Means Committee. “But the revenue grab isn’t the scariest part.” Rangel wants to slap surcharges on wealthy taxpayers that would increase their combined state, local, and federal tax rates to 48 percent—higher than in any country other than Denmark, Sweden, and France. Rangel’s plan has no chance of passage as long as George Bush is president. “But if Clinton is elected, you can bet that something like it will become law.”

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Let’s hope so, said Jason Furman in The Washington Post. Rangel’s plan is “a sound way” to fix America’s “broken” system for taxing business. As it stands now, America has the second-highest corporate tax rate among industrialized nations. But we actually collect relatively little in corporate tax revenues because there are “so many generous special tax preferences for business.” Many CEOs, as well as Republicans such as Treasury Secretary Henry Paulson, favor eliminating those preferences in return for a lower corporate tax rate. That’s just what Rangel is proposing. If Republicans know another way to make the tax system simpler and fairer, “they should join the discussion with specific proposals of their own.” Save the partisan sniping for the campaign trail.