Rangel pitches tax ‘relief’

The Democrats’ top tax-writer yesterday introduced a massive plan to give tax relief to 90 million working families, a long-anticipated tax-code overhaul that Republicans criticized as the largest proposed tax increase in U.S. history.

The bill would expand income-tax breaks for the middle class while limiting deductions and adding taxes on high-end earners, increase the tax rate on “carried interest” fund managers earn on investments, and cut corporate tax rates. The Democratic plan also would repeal the alternative minimum tax (AMT), because it is set to penalize middle-income families this year.

House Ways and Means Committee Chairman Charles B. Rangel, New York Democrat, said the changes would provide Americans a “greater sense of equity and fairness” about the tax system.

“For too long, hardworking families have struggled to keep pace with the rising cost of living in America,” he said. “This legislation would put money back in their pockets to combat the growing economic insecurity gripping our nation.”

Republicans say the rewrite of the tax code, which Mr. Rangel touts as the “mother of all tax reforms,” would raise taxes $1.3 trillion by itself or more than $2 trillion when coupled with Democrats’ plan to let expire President Bush’s 2001 and 2003 tax cuts.

House Minority Leader John A. Boehner said the bill couldn’t come at a worse time — amid a slowing economy and a mortgage lending crisis — and threatened to reverse five years of gains from Republican tax cuts that reaped job growth, rising household incomes and increased federal tax revenue.

“Imposing higher taxes at this time will doom our economy, put people out of work and cost the federal government revenue that is badly needed if we are in fact going to balance the budget,” the Ohio Republican said.

The legislation, titled the Tax Reduction and Reform Act of 2007, would be the largest overhaul of the tax code since 1986.

Mr. Rangel doesn’t plan to take up the bill in committee until next year, setting the stage for a grueling election-year tax debate.

House Speaker Nancy Pelosi, California Democrat, said the bill did not yet have the backing of the caucus but was in keeping with the party’s vision of tax reform, which she said is focused on “middle-class tax cuts.”

Key provisions include a refundable child tax credit, an increase in the standard deduction and enhanced earned income tax credit — relief measures aimed at the middle class. It adds fairness, supporters say, by targeting rich Wall Street elites with the higher tax on carried interest, which is currently taxed at the lower capital gains rate of 15 percent but the Rangel proposal would put under the higher personal income-tax rate.

House Minority Whip Roy Blunt, Missouri Republican, said the measures would rekindle the politics of “class warfare” in America.

The bill’s centerpiece is the elimination of the AMT, a special 1969 income tax designed to ensure that the rich pay at least some tax but which will now hit middle-income families if not kept at bay by temporary “patches” passed by Congress.

Mr. Rangel said the committee would soon go to work on a one-year patch that would stop the AMT from penalizing taxpayers who made a little as $50,000 in 2007 — buying time for the larger tax policy debate next year.

The bill would recoup some of the revenue lost by repealing the AMT — about $800 billion in 10 years — by adding a 4 percent surtax on individuals earning $200,000 to $250,000 a year and a 4.6 percent surtax on individuals making more than $250,000 and families making more than $500,000 a year.

Story Continues →