'Subtle" has never been an adjective used to describe Charles Rangel. The outspoken Democrat from New York has historically expressed his rather candid opinions on a number of issues - usually at several decibels higher than everyone else.When the Democrats assumed control of the Congress and Rangel assumed the chair of the House Ways and Means Committee, he immediately began throwing out a series of sound bites about the need for Tax Code reform and the repeal of the alternative minimum tax.
Last month, he unveiled the Tax Reduction and Reform Act of 2007, the "mother of all tax reforms," as he labeled it, a $1 trillion plan that targets the repeal of the AMT, while raising taxes in a number of other areas. As with any plan that is followed by 12 zeroes, it's a lot to digest, and has been both hailed and assaulted by Capitol Hill observers. One wag described it as having "some roses, some thorns and a lot of manure."
I doubt many mid-level taxpayers who have suffered the ignominy of having to pay out for the AMT would argue that eradicating the 37-year-old tax is a bad thing. As most know, Congress enacted the AMT in 1969 as sort of salve to a public outcry that 155 people who earned more than $200,000 per year found themselves the beneficiaries of loopholes that allowed them to escape with paying little or no income tax. For those interested, if that $200,000 salary was indexed for inflation, it would equal roughly $1.2 million in today's dollars.
The problem is that the AMT was never indexed for inflation, and like most things in Washington that are left unchecked, it has spiraled so far out of control that it will affect nearly 25 million families if not fixed. The AMT has subsequently received a number of Tax Code patches, which are akin to replacing a flat tire with a "doughnut" wheel until you get to the service station.
Rangel's reform would slash the top corporate tax rate about five percentage points, from 35 percent to 30.5 percent. The sponsor projects that the plan would bring a net tax reduction to nearly all families with less than $500,000 in income.
But a permanent repeal would cost an estimated $800 billion over 10 years. To temper that shortfall, Rangel's reform proposes a $48 billion tax increase on executives of hedge funds and private equity firms, as well as a "replacement tax" of 4 percent on joint filers earning over $200,000, and a 4.6 percent levy on income over $500,000 for couples, or $250,000 for single taxpayers.
I assume that many will reserve judgment until the numbers are run and we can see if critics' fears are justified and Rangel's plan ironically impacts those same taxpayers who are under the AMT umbrella now. But we may have at least two years to ponder Rangel's mammoth fix. This year, no one realistically expects any action on it, and next year, as we've been hearing since 2005, is an election year.
The ensuing discussions should be anything but subtle.
