Corporate Cronies Complain Again: Rangel's Tax Bill
I was just reading the business section of the NYT when I came across this article about congress's attempt to reform the "alternative minimum tax" and was once again confirmed in my view that the business page contains the most important news stories. I checked the WSJ for stories on the bill and found this story, which frames the problem as one of the Democrats trying to maintain fiscal responsibility and keep in line with "pay as you go" rules that call for off-setting any spending with changes in taxes or spending cuts. A similar story in Forbes focuses on the "tax-the-rich" vs. "tax-the-middle-class" aspect of the story, as does the New York Times. Both papers say it is unlikely that the senate will pass the bill, but if they do, Bush has promised to veto it.
The policy advocated in this new House bill, written by Charles Rangel, seems reasonable. It would keep "upper-middle-class" taxpayers from being caught by the Alternative Minimum Tax, and pay for it by closing a loophole that benefits ultra-wealthy hedge-fund managers, who currently pay 20% less in taxes than most other people. As Citizens for Tax Justice puts it, the bill calls for the end of the ongoing use of middle-class tax dollars to subsidize multi-millionaires. Real-Estate interests have responded by hiring a major Bush economic advisor, Douglas Holtz-Eakin, to spin the story by suggesting that increasing the taxes on hedge-fund managers to the regular rate instead of keeping it at an especially low-rate will hurt real-estate in a time of crisis. Karl Rove goes beyond that, obfuscating the issue with scare tactics, and claims that proposed tax changes in the house threaten a general "$ 1 trillion tax increase." Here's how Rove got there. According to an article by Lisa Lerer, Politico.com,
Repealing the AMT would reduce federal tax revenue by more than $800 billion over the next 10 years — and that’s assuming the Bush tax cuts expire in 2010. With the tax cuts in place, the costs would near $1 trillion.
But of course, Rangel's proposal does not create a big gap in the budget without paying for it; it shifts the tax-burden to hit more of those ultra-wealthy people that got major tax-cuts from Bush. The tax-increases in the bill include:
a surtax of four percentage points on married couples with adjusted gross income of more than $200,000 and 4.4 percentage points for couples with more than $500,000 in income.
The bill also targets the managers of hedge funds and private-equity firms. The executives' earnings would be taxed at ordinary income tax rates, which are more than double the capital gains rate they now pay. Hedge fund operators would also lose their ability to defer income taxes through the use of offshore havens.
Ultimately, the $1 trillion tax-hike that Rove and Republicans are proclaiming would effect the wealthy people that have benefited most from the hugely expensive Bush tax-cuts. The Tax Policy Center breaks down Rangel's bill like this:
* About 86 million households (57 percent of the total) would get a tax cut in 2008.
* About 3.6 million households (2.4 percent) would pay higher taxes.
* Almost no one earning less than $100,000 would receive a tax increase.
* Almost 80 percent of households earning more than $500,000 would face higher taxes.
As Sam Pizzigati of the blog "Too Much" argues, it doesn't reverse that much of the damage; it's a modest proposal, after all.
Given the clarity of what the bill does, the questions are: 1) will the American public get clear enough information to see that the bill is in the interest of the middle class? and 2)Will Democrats have the courage to support it when it goes to the senate?