Democrat rolls out tax overhaul plan

"U.S. House"

10/25/2007

Rep. Rangel's package would boost taxes on some of the nation's wealthiest people, including super-rich financial executives, and provide relief for 90 million households earning less than $400,000.


By Noam N. Levey and Jonathan Peterson,
Los Angeles Times Staff Writers
October 25, 2007


WASHINGTON -- The lead tax architect in Congress today unveiled a sweeping package of cuts and increases, which could become the blueprint for the Democrats' initiative to overhaul the tax code with the majorities they hold in the House and Senate.

The plan would reverse the trend of the President Bush years by boosting taxes on some of the nation's wealthiest people, including super-rich financial executives. It would provide tax relief for 90 million households earning less than $400,000, with targeted breaks aimed at moderate- and lower-income families.

It would also eliminate the Alternative Minimum Tax, a measure designed to ensure that the rich pay at least some taxes, but which could lead to bigger tax bills for many middle-class families.

And in at least one departure from Democrat stereotypes, it would reduce the corporate income tax, a measure also recommended by the White House, and extend a range of tax breaks sought by businesses.

"We have attempted to restore equity and fairness to the system," said Rep. Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee, whose plan would pay for tax relief by wiping away various provisions enjoyed by business and investment firms.

"People are working longer than ever before," he said, pointing to concerns that many middle-class families struggle with financial insecurity, even as the economy has grown and created an elite class of investors and entrepreneurs. "Couples are working longer than ever before, and they are not receiving the benefits of existing tax cuts" because of costs for housing, education and healthcare.

The proposal is the starting gun in a debate that will rage in the House in the months ahead -- including within the Democratic Party -- and into the general election campaign next year.

Business lobbyists and Republican lawmakers oppose much of the plan, and today assailed it as a giant tax hike. Moreover, it was not clear how much support Rangel can count on from influential members of his own party, who are loathe to antagonize well-heeled interests as an election-year dawns.

At the same time, Rangel, a liberal New Yorker, controls the House's official tax-writing panel, and his priorities are certain to help reshape a national debate on tax fairness, following more than a decade of Republican domination that featured an emphasis on tax cuts and business-friendly tax breaks.

"It's an incredible opportunity" to use a tax initiative to address inequities in the economy, said Rep. Mike Thompson (D-Napa), a member of the Ways and Means Committee. "I think it will provide a good juxtaposition of what we are trying to do versus what they did. They had six years of irresponsible government. This is a chance for us to turn that around."

Under the plan unveiled today, tax burdens would be altered through an array of changes affecting ordinary households and businesses. Some of the highlights:

* Eliminate the Alternative Minimum Tax. This proposal is intended to prevent the AMT from hitting 23 million households this year. The AMT was imposed in the late 1960s to make sure that the wealthiest Americans paid at least some tax, but it has applied to a growing number of households because it is not indexed for inflation. Given the difficulty of passing his overall plan, Rangel plans to move forward with a short-term bill to defuse the AMT for this year.

* Impose a surcharge on higher-income people. The most affluent taxpayers, earning at least $200,000 for couples filing joint returns, would face a new surcharge of 4%, moving up to 4.6% for those earning over $500,000.

* Reduce the corporate income tax. The top rate for the corporate income tax would fall from 35% to 30.5%, a move supported by the Bush administration to enhance U.S. competitiveness. At the same time, the plan would seek to end a range of provisions that Rangel views as loopholes.

* Ease burdens for working families. To accomplish this, the plan would increase the standard deduction, make the Earned Income Tax Credit for the working poor more generous, and increase the amount of the refundable child tax credit.

* Increase taxes for managers of private-equity funds, the investment pools that often buy publicly traded companies and take them private. Executives of these funds have claimed earnings at a 15% capital gains tax rate, rather than the 35% they might otherwise pay for ordinary income. Rangel said today that such favorable treatment was not justified.

House Speaker Nancy Pelosi (D-San Francisco) said today that she personally supported Rangel's plan. But Pelosi acknowledged that the sweeping proposal to fundamentally reform the tax system would probably be debated heavily even within Democratic ranks.

"Folks in our caucus will have the usual dynamic give and take on the subject," Pelosi said.

Republicans on Capitol Hill have been gearing up to challenge Rangel's proposals, labeling it the "mother of all tax hikes" even before Rangel unveiled it. And several GOP leaders seemed eager to face off with their Democratic rivals over taxes.

"It will be an important debate that really highlights the differences between the Republican vision of innovation, competitiveness, low taxes, low burdens ... versus one that pits Main Street against everyone else and sets up this situation of class warfare," said Florida Rep. Adam Putnam, the No. 3 Republican in the House.