Economists see higher taxes un­der Demo­crat plan

The Washington Times Weekly - - National - By S.A. Miller

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.”

Getty Images

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.

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