Taxes Would Rise for 1.7 Million Under Rangel Plan Due Today

WASHINGTON — At least 1.7 million Americans would face a tax hike under a broad overhaul that Rep. Charles Rangel of Harlem is planning to unveil this morning, people briefed on the legislation told The New York Sun.

Mr. Rangel, the Democratic chairman of the House Ways and Means Committee, will introduce a long-awaited bill that he has famously dubbed the "mother of all tax reform." If enacted, it would represent the most sweeping changes to the tax code since 1986.

The legislation will seek to eliminate the alternative minimum tax, with Mr. Rangel proposing to pay the estimated $800 billion cost of the repeal by imposing a 4% to 4.6% surtax on people earning more than $200,000 a year.

Other measures in the bill include an expansion of the earned income tax credit for single adults and a more generous child tax credit. Mr. Rangel has already said he would propose a higher tax rate on the "carried interest" profits earned by managers of hedge funds and private equity firms, which will also help pay the cost of scrapping the AMT.

Mr. Rangel is expected to characterize the bill as tax relief for 91 million Americans, but Republicans are sure to dispute his numbers; they have argued that a repeal of the AMT is not a tax cut as such, but merely prevents a tax hike for millions of people it was never intended to hit. The minimum tax was first enacted in 1969 to ensure that the 155 wealthiest Americans did not entirely skirt income taxes through loopholes or other deductions, but it threatens to affect millions more next year because it was never adjusted for inflation.

Under Mr. Rangel's proposal, single adults making more than $250,000 and joint filers making more than $500,000 a year will see a tax increase. Married taxpayers making between $200,000 and $250,000 a year will face higher taxes than they currently pay but less than if they were hit by the AMT, people briefed on the bill said yesterday. Mr. Rangel will thus argue that this represents a net tax cut for those families, while Republicans will cast it as a tax increase.

The proposal also will slash the base rate for corporations to 30.5% from its current 35%. This would be offset by eliminating an existing deduction for manufacturers, among other provisions.

Mr. Rangel has been touting the overhaul for months, even as he has delayed in introducing it. Staffers expect the bill to come in at several hundred pages. With Democrats focusing on other issues and Republicans staunchly opposed to paying for an AMT repeal with tax increases, the legislation is highly unlikely to reach the House floor before next year — if at all.

Acknowledging the political obstacles of the broad reform, Mr. Rangel also will introduce a package to "patch" the AMT for one year and prevent as many as 25 million people from facing a tax hike in 2007. The cost of that bill is estimated at $68 billion, and Mr. Rangel will propose an increase in the "carried interest" rate for hedge fund and private equity managers to pay for it. Yet that will also face significant political opposition, and Democrats will be under pressure to waive "pay-as-you-go" rules they enacted when they took control of Congress in January. Those rules require that tax bills be revenue neutral and that any rate reductions be offset by increases elsewhere in the code.