posted 10-25-2007 03:06 PM                  

Press Release

Memo: McCrery on "Mother of All Tax Hikes"
October 25, 2007

By Ways and Means Republican Press Office

MEMO

RE: “Mother of All Tax Hikes” Bill

TO: Republican Members, Republican Staff

FROM: Ways and Means Committee Ranking Member Jim McCrery

My Friends,

At a bipartisan Ways and Means caucus last night, Chairman Rangel outlined his long-awaited “Mother of All Tax Hikes” legislation. The basics of the package are simple: This is the largest individual income tax increase in history.

The bill will add a 4% surtax on Americans earning more than $150,000 a year ($200,000 for couples). That is on top of the scheduled expiration of the 2001 and 2003 tax cuts. So, under Democrats’ plan, over the next few years, the individual income top tax rate in the United States will rise from 35% to 44%. By way of comparison, the other 29 Organization for Economic Co-operation and Development countries – basically other developed nations - have an average top marginal tax rate of 35.7%. In fact, only five OECD countries would have higher top marginal tax rates in 2011 than the United States if the Democrats’ bill is enacted.

This crushingly high tax rate will affect approximately 10 million taxpayers directly - including those who report business income, like small business owners and farmers - but the damage will ripple throughout our economy. Because small businesses and family farms often pay their income taxes as individuals, this is a massive tax hike on the engine that drives job growth in this country.

In addition, the surtax is on adjusted gross income, not taxable income. This sounds like a technical issue, but it means that Rangel’s bill will erode the value of a series of tax deductions – including for mortgage interest, charitable giving, medical expenses, state and local taxes, and the standard deduction. And, because the surtax kicks in at $150,000 for individuals and $200,000 for couples, the bill creates a monster of a marriage penalty.

Chairman Rangel will claim that these tax increases go to provide tax cuts to 90 million Americans, but he is selling pure snake-oil. Many if not most of those taxpayers are getting a purely imaginary “tax cut.” Some of them are the roughly 20 million people that Republicans shielded with the Alternative Minimum Tax patch. Millions more are people who have benefited from the 2001 and 2003 tax cuts, and only get “tax cuts” if you assume that the 10% bracket, marriage penalty, and $1,000 per child tax credit will expire. Others, like single people who will now be eligible for the Earned Income Tax Credit, are getting a tax refund from the government even though they don’t actually pay income taxes.

It will take time to analyze this bill and sort through the data, but we know from the start that the 90 million figure is pure hokum. In fact, before you know it more taxpayers may wind up paying higher taxes – and fewer paying less - under Rangel’s plan than they did last year.

Which brings us to the larger fallacy of the Democrats’ “paygo” system. There is no need to “pay for” protecting taxpayers from a massive AMT tax hike. The government never meant for the AMT to affect middle-class Americans, and we have a responsibility to make sure it doesn’t. By arguing that preventing this tax increase requires us to raise taxes elsewhere, Democrats are trying to lock Congress into a system where we are guaranteed to raise taxes by $3.5 trillion over ten years.

That’s right. $3.5 trillion. The baseline that the Democrats are using for “paygo” includes revenue from an “un-patched” AMT and from the tax increases that occur when the 2001 and 2003 tax laws expire after 2010. Together they total $3.5 trillion over ten years. If we play by the Democrats “paygo” rules, that is the size of the tax increase we are imposing on the American people. That will hurt our nation’s competitiveness and cost us American jobs. The Rangel bill is the first step down a road none of us want to follow, and I urge you to oppose it strongly.

posted 10-25-2007 04:01 PM                  

One of the major issues facing the federal government is that the Alternative Minimum Tax (AMT) has been factored into President Bush's annual budgets for years. To simply repeal it with no replacement can only result in the U.S. increasing its already massive debt. To help mitigate the loss of AMT revenue, federal government spending could be reduced by about $80 Billion per year for that part of the federal budget that is classified as "discretionary spending." We can cut back on NASA programs or perhaps military acquisitions, or maybe homeland security programs or maybe border protection or farm subsidies, etc.

Lawmakers on both sides of the aisle and those in between have known for years that the AMT would start to affect middle- and upper-middle-income taxpayers barring any permanent changes to the law, but nevertheless past congress members did nothing and left it on the books.

That means every federal budget projection has factored in the amount of revenue the AMT was projected to raise, even including revenue generated once it started hitting non-wealthy taxpayers, and spending commitments were made based on those projections.

Here's another take on the proposal.

By Howard Gleckman
The Tax Policy Center (A joint venture of the Urban Institute & the Brooking Institute)

Let’s start with the obvious: The tax plan rolled out today by House Ways & Means Committee Chairman Charlie Rangel (D-N.Y.) IS NOT the “mother of all tax reforms,” the congressman’s claim notwithstanding.

However, it would do some pretty big things, such as eliminating the Alternative Minimum Tax, raising individual rates, cutting corporate rates, and slashing tax benefits for big multinationals. But it largely ducks a whole host of major issues, especially how we should tax savings vs. consumption and the tax treatment of health insurance.

What I like about the plan:

1. It puts tax reform back on the table. The last time the idea was part of the policy conversation was two years ago, when President Bush’s Advisory Panel on Federal Tax Reform issued its report. The ideas raised by that group may have grown to become the true mother of all tax reforms, but Bush strangled them at birth. With the Chairman of the Ways & Means Committee signaling his enthusiasm for the issue, we may be starting a new discussion. Not this year, and probably not next year. But perhaps in 2009.

2. It gets rid of the AMT in a more or less fair way—by raising rates on the upper-brackets, including those most likely to get hit by the AMT today. Somewhat higher rates in return for AMT relief will be a good deal for most.

3. It increases the standard deduction by $850 for joint filers. It is about time.

4. It slashes the corporate rate from 35% to 30.5% and closes some tax loopholes.

5. It dumps the domestic production deduction which was adopted as part of international tax “reform” a couple of years ago. It is past time to set this dreadful provision afire and float it out to sea.

What I don’t like:

1. The way AMT relief is funded. Instead of simply raising rates, Rangel creates a “replacement tax” on adjusted gross income, which includes a lot more than what we now consider taxable income. This makes some sense because this broader base would capture income that tax code now misses, but it can get pretty complex. Worse, Rangel’s plan would restore the phase-outs of itemized deductions and the personal exemption (so-called Pease and Pep). If he wants to raise rates on rich people, I wish he’d just say so.

2. It is too timid when it comes to closing loopholes. No fewer than 32 tax “extenders” would live for yet another year. The biggest tax expenditures, such as employer-sponsored health insurance and mortgage interest, are untouched.

3. By widening the gap between corporate and individual rates, the plan creates lots of new opportunities for tax arbitrage by the super-rich.

posted 10-25-2007 04:18 PM                  

Mother Of All Tax Reforms Politico is writing about The trillion dollar tax fight.

By now, everyone knows Rep. Charles B. Rangel is poised to introduce the “mother” of all tax reforms, the biggest and most expensive tax code overhaul since 1986. But what they don’t know is how the New York Democrat plans to pay the more than $1 trillion price tag — and that uncertainty is fueling rampant speculation from Capitol Hill to K Street.

The fiscal fortunetellers fall into four categories: Robin Hoods, Goldilockses, Chicken Littles and Scarecrows.

Robin Hoods expect Rangel to swap the AMT for a new tax targeted exclusively at the highest-income payers. One often-mentioned idea, proposed by Leonard Burman, director of the Urban Institute’s Tax Policy Center, would impose a 4 percent surcharge on unmarried taxpayers making more than $100,000 a year and couples making more than $200,000.

The 4 percent tax proposal is more progressive than the AMT, Burman said, as it would place more of the tax burden on the wealthy. Burman’s idea carries more than a whiff of irony. The AMT was originally designed to increase taxes on high-income individuals.

The Goldilockses anticipate a slightly different landscape. This group predicts that Rangel will cobble funding together through a set of tax code tweaks. The Goldilockses say he’ll try closing different variations of the so-called tax loopholes until he finds the politically palatable mix that’s “just right,” as Goldilocks once said.

The Goldilocks path wouldn’t be easy for Rangel. After all, the more industries you tax, the more enemies you make in the process.

A small but growing group of Chicken Little-style predictors are churning fears with cataclysmic claims about Rangel’s intentions. “We are looking at the remainder of the year to be ground zero for the tax fight of all tax fights,” said Rep. Eric Cantor (R-Va.). “This tax hike is going to hit the American people, businesses and investors who are, quite frankly, relying on this Congress to be fiscally prudent.”

Finally, there are the world-weary voices of the Scarecrows, who offer the sort of thoughtful analysis of perilous predicaments that calmed the character’s fellow travelers in Oz. The tax sky isn’t really falling, they say, and it’s highly unlikely Rangel will get much done before the end of the session. Rather, he’s simply setting the stage for a longer battle.
Here's What Needs To Happen

The tax code should be scrapped in entirety.
All loopholes, tax breaks, and incentives should be abolished for the simple reason that every loophole, tax break, and incentive is unfair to someone else.
A flat tax or combination flat tax / consumption tax should be put in place of a trillion miles of tax code.
Ideally the new code would fit into a single 10 page document and written so that anyone with a sixth grade education could understand it.
Taxes would be collected out of salaries and out of consumption (sales) taxes. There would be no forms for individual taxpayers to file. Corporations would simply have to prove withholding.
There would be no need for the IRS and it should be abolished.
Congress should not spend more than it takes in.

That's it. It's simple and logical. The last bullet point is crucial. It would stop nonsensical wars like the one in Iraq. Either taxes would be raised or the war would not be fought.

Of course H&R Block and a million tax consultants would hate it. So would the NAR and the NAHB. So would anyone getting a break on mortgages, education, or whatever. So would Congress who likes to spend money building bridges to nowhere in addition to a zillion other stupid pet projects.

But the fact remains that in aggregate everyone would be better off on a fair and equitable system that treated everyone equally. Instead, expect the mother of all battles by every interest group under the sun, all arguing why their tax break should remain.

posted 10-25-2007 11:11 PM                  

You think your hearing about the mother of all taxes - check this.