Economists see higher taxes under Democrat plan
Economists from across the political spectrum agree that the Democrats’ tax-relief plan for middleclass families comes with a hefty tax increase.
“It will mean a lot more taxes for me,” said Boston University economist Laurence Kotlikoff, a policy adviser to Democratic presidential hopeful Mike Gravel.
Nevertheless, Mr. Kotlikoff backed the massive tax-code rewrite introduced two weeks ago by Rep. Charles B. Rangel, New York Democrat and chairman of the House Ways and Means Committee, which promises to boost the top marginal income-tax rate to 44 percent — higher than most European tax rates.
“I think it is a move toward increased equity in the tax system, which I think is a good idea and long overdue,” Mr. Kotlikoff said.
Mr. Rangel’s proposal includes a repeal of the alternative minimum tax (AMT), which is set to wallop middle-class families this year. The proposal would recoup the projected tax-revenue loss of $800 billion over 10 years with a surtax on top earners.
Tax-policy specialists on both sides of the aisle applauded the elimination of the AMT, a special 1969 income tax designed to ensure that the rich pay at least some taxes but now will hit middle-income families if not kept at bay by temporary “patches” passed by Congress.
“That was a smart move,” said Alan D. Viard, a resident scholar at the conservative American Enterprise Institute in Washington, who formerly served as senior economist at the Federal Reserve Bank of Dallas.
“But the way [Mr. Rangel] is paying for it by increasing the marginal rates at the top is destructive,” he said, calling the high top rate a disincentive to save or invest and for small business.
Under the Rangel plan, the AMT would be replaced with a 4 percent surtax on people earning $200,000 and families earning $250,000 a year. A 4.6 percent surtax would strike people making more than $250,000 and families making more than $500,000 a year.
The surtax, coupled with the Democrats’ plan to let expire President Bush’s tax cuts of 2001 and 2003, would eventually lift the top marginal income-tax rate from the current 35 percent to 44 percent, said Rep. Jim McCrery of Louisiana, the ranking Republican on the Ways and Means Committee.
The only rates higher would be Australia’s 47 percent, France’s 48.09 percent, Austria and Belgium both at 50 percent and New Zealand at 52 percent, according to the Organization for Economic Cooperation and Development, an association of democratic industrialized countries.
The tax changes proposed by Mr. Rangel in the Tax Reduction and Reform Act of 2007 would raise taxes $1.3 trillion over 10 years or by as much as $3.5 trillion if the Bush tax cuts expire, Mr. McCrery said.
“That would be a crushing blow for the American economy, jobs and wage growth,” said J.D. Foster, a senior fellow at the Heritage Foundation, a conservative Washington think tank.
Mr. Rangel’s bill also sets the stage for raising taxes year after year under the guise of being revenue neutral, Mr. Foster argued in an essay on the foundation’s Web site, www.heritage.org.
“The Congressional Budget Office revenue base line scores current law with respect to taxes and current services with respect to spending,” he said.
The revenue base line goes up when tax cuts expire, but it doesn’t go down when spending programs end, he said.
“Raising taxes either overtly or covertly, under the cloak of revenue base-line games, is neither needed nor appropriate,” Mr. Foster said. “With taxes already above the modern norm, Congress should be looking for opportunities to bring the level of taxes down.”
House Ways and Means Committee Chairman Charles B. Rangel’s proposed tax reform would make the U.S. rates among the highest in the world, critics of the plan point out.