Democrats Unveil $1 Trillion Tax Plan

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The New York Sun

WASHINGTON — The House’s top Democratic tax writer today outlined a $1 trillion plan to eliminate the alternative minimum tax and ease the tax burdens of most Americans by asking the rich and some corporations to pay more.

“We have attempted to restore equity and fairness to the system,” the chairman of the Ways and Means Committee, Charles Rangel of Harlem, said in introducing a plan he said would bring net tax cuts to almost all families with incomes under $500,000.

Mr. Rangel, at a news conference, said the more ambitious aspects of his proposal, which includes cutting the corporate tax rate while closing business loopholes, would take time “to be aired out.” He hoped it might move forward by next spring.

Republican leaders didn’t need time to take a stand. The House GOP leader, John Boehner of Ohio, said the “mother of all tax hikes” would “doom our economy” and put people out of work.

Rep. Roy Blunt of Missouri, second-ranking GOP leader in the House, said his party would use the proposal to show Democratic support of tax hikes. “Very seldom in politics do people give you this kind of gift,” he said.

Mr. Rangel shrugged off the Republican criticisms. “We are not raising taxes,” he said. “We are restructuring the rates of taxes.” He said that under his plan some 91 million families would receive tax relief.

He was backed by the House speaker, Nancy Pelosi, Democrat of Califnornia. “I certainly support his plan,” she said, while indicating there would be vigorous debate among Democrats. “In our caucus we’ll have a mutual, exciting, dynamic give-and-take on the subject.”

The package includes a one-year fix to shield middle-income families who could otherwise be hit by the alternative minimum tax and extends several dozen targeted tax breaks in such areas as research and development credit, deductions of state and local sales taxes, and credits for teachers and charitable donations. Congress is expected to act on the AMT fix and the extensions this year, although Mr. Rangel acknowledged differences with the Senate on how to pay for it.

Treasury Secretary Paulson on Tuesday warned in a letter to Congress that failure to pass an AMT fix soon would expose 21 million taxpayers to the tax, with an average tax increase of $2,000.

The AMT was created in 1969 to ensure that a very small number of wealthy people couldn’t use tax breaks or deductions to eliminate their entire tax liability. But the tax was not indexed to inflation, and every year more people are exposed to it. Nearly 4 million taxpayers were subject to the AMT in 2006, and the number is expected to multiply in 2007.

The Rangel proposal would extend for one year the current-law AMT relief for nonrefundable personal credits, at an estimated cost of $47 billion over 10 years. He suggested that could be paid for by preventing investment fund managers from paying taxes at a lower capital gains rate and stopping hedge fund managers from using offshore tax haven corporations to defer taxes.

Democrats are committed to pay-as-you-go rules requiring that ways be found to pay for any spending increases or tax cuts so as not to add to the federal deficit.

The permanent repeal of the tax would cost nearly $800 billion over 10 years. That would be offset by applying a replacement tax of 4% of married couple income above a certain level, not to be less than $200,000. The tax would be 4.6% on income in excess of $500,000, or $250,000 in the case of a single taxpayer. High-income individuals would see a limitation on itemized deductions and a phase-out of deductions for personal exemptions, raising $29 billion over 10 years.

The bill also reduces the top corporate marginal tax rate to 30.5%, from 35%, at a cost of $364 billion over 10 years. This would be paid for in part through such measures as repealing the domestic production activities deduction and requiring that American corporations that defer income through controlled foreign corporations also defer the deductions that are associated with this income. The last-in-first-out accounting method would also be eliminated, saving $106 billion over 10 years.

Under the Rangel plan (with costs and new revenues over a 10-year period):

— Married couples filing jointly would be entitled to take an additional $850 as a standard deduction, at a cost of $48 billion.

— The number of lower-income taxpayers qualifying for earned income credit would grow, at a cost of $29 billion.

— The refundable child credit would be increased, at a cost of $9 billion.


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