Ran­gel tax bill jit­ters

The Washington Times Weekly - - Commentary - Don­ald Lam­bro

Char­lie Ran­gel’s tax bill has a few good things in it, like low­er­ing cor­po­rate rates, but he does it by rais­ing taxes on mil­lions of small busi­nesses, in­vestors and two-earner cou­ples just be­cause they are mar­ried.

The po­lit­i­cal buzz in Demo­cratic back­rooms two weeks ago, af­ter the lib­eral Ways and Means Com­mit­tee chair­man pro­posed the “mother of all tax bills,” wasn’t happy. Why un­veil a tax bill now, as Democrats ap­proached a piv­otal elec­tion year? Why give Repub­li­cans an early cam­paign tar­get to shoot down? Es­pe­cially one that isn’t go­ing any­where next year.

Repub­li­cans, on the other hand, were glee­ful at the prospect of run­ning against what they call “an in­come re­dis­tri­bu­tion scheme” that will im­prove their chances of mak­ing gains in Congress and in the pres­i­den­tial elec­tion as well.

At a strat­egy meet­ing of tax­cut­ters called by anti-tax cru­sader Grover Norquist, New York Rep. Tom Reynolds, who ran the House Repub­li­can cam­paign com­mit­tee last year, said voter anger over the bill “will boost GOP num­bers in the House.”

For­mer House Ma­jor­ity leader Dick Armey laid out the likely Repub­li­can coun­terof­fen­sive for 2008: “It’s ob­vi­ously a grand in­come re­dis­tri­bu­tion scheme by Ran­gel to raise taxes on work­ing Amer­i­cans so they can take more peo­ple off the tax rolls and pay for Hil­lary Clin­ton’s plan to take over health care.”

“It helps Repub­li­cans and gives us some­thing to run against, some­thing se­ri­ous. Ran­gel’s given Repub­li­cans hope that they could take the House back,” Mr. Armey told me. Mr. Norquist is even more ec­static over Mr. Ran­gel’s plan, call­ing it “the long­est sui­cide note in re­cent his­tory.”

“It’s a tremen­dous op­por­tu­nity for the Repub­li­cans. This is a gift from the gods. This is some­thing Repub­li­cans could not have done for them­selves,” he said.

Mr. Ran­gel’s plan would slap a hefty 4 per­cent sur­tax on sin­gle tax­pay­ers who earn more than $150,000 and on mar­ried cou­ples fil­ing jointly who make more than $100,000 each. In ef­fect, they are “putting a mas­sive new mar­riage penalty into the tax code,” Ways and Means Repub­li­cans charged.

More­over, un­der Mr. Ran­gel’s bill “you can kiss your de­duc­tions good­bye,” they add. The sur­tax would be levied on ad­justed gross in­come be­fore any de­duc­tions for char­i­ta­ble con­tri­bu­tions, mort­gage in­ter­est, med­i­cal costs, and other ex­penses.

Democrats ar­gue that they are merely tax­ing the rich, though a wife and hus­band who each earn $100,000 could be plumbers, auto work­ers, chefs or of­fice man­agers. Add a few chil­dren and th­ese tax­pay­ers hardly con­sider them­selves rich.

But the new sur­tax Mr. Ran­gel wants to im­pose on work­ing Amer­i­cans would also af­fect an es­ti­mated 24 mil­lion small busi­nesses who pay their taxes through in­di­vid­ual tax re­turns. Many will lose de­duc­tions that lower their taxes on busi­ness in­come, while in­cor­po­rated busi­nesses will ben­e­fit from a rate cut, mak­ing it harder for small em­ploy­ers to com­pete with the Wal-Marts of this world. Mr. Ran­gel would also slap his sur­tax on cap­i­tal gains, ef­fec­tively rais­ing the 15 per­cent long-term cap­gains rate by an­other 4 per­cent or more for mil­lions of in­vestors.

Ran­gel Democrats say th­ese higher tax rates will only be ap­plied to the rich, but Repub­li­can strate­gists say that ar­gu­ment in­stinc­tively trig­gers doubts among most tax­pay­ers. “When­ever the Democrats say they are rais­ing taxes on the rich, most of the pub­lic thinks it will hit the mid­dle class and Repub­li­cans will start mak­ing that ar­gu­ment,” said Ce­sar Conda, a vet­eran eco­nomic pol­icy strate­gist who is ad­vis­ing Mitt Rom­ney’s cam­paign.

But Repub­li­can tax-cut cham­pion Jack Kemp, the high-en­ergy ar­chi­tect of the Rea­gan tax cut agenda of the 1980s, of­fers this word of cau­tion for his party. “It isn’t enough to be against Ran­gel’s bill, we have to of­fer our own pro­pos­als. He has to his credit be­gun a de­bate over tax re­form that low­ers the cor­po­rate tax rate from 35 per­cent to 30 per­cent, but pays for it by rais­ing taxes on cap­i­tal gains and cap­i­tal in­vest­ment which is a bad idea,” Mr. Kemp told me.

Polls show taxes re­main a key is­sue for mil­lions of Amer­i­cans who think they’re too high, and Mr. Kemp thinks that, prop­erly framed, it could throw Democrats on the de­fen­sive next year. “If Democrats were to en­dorse Ran­gel’s plan, it would def­i­nitely lead to Repub­li­can gains in the House and Se­nate. If our pres­i­den­tial can­di­date spells out what is wrong with the Ran­gel bill and pro­poses a tax sys­tem that is flat­ter, sim­pler and fairer, we’ll have a win­ning is­sue in 2008,” he said.

Mr. Ran­gel has moved the tax is­sue to the fore­front of next year’s elec­tions, giv­ing Repub­li­cans a chance to draw a stark con­trast be­tween higher taxes that will weaken eco­nomic growth and lower tax rates that will strengthen it.

Pat Toomey, pres­i­dent of the Club for Growth, likes the GOP’s chances in that kind of de­bate: “Democrats are hop­ing that most Amer­i­cans are mo­ti­vated by envy and class re­sent­ment. And in the past, that has gen­er­ally been a bad bet.”

Don­ald Lam­bro, chief po­lit­i­cal correspondent of The Wash­ing­ton Times, is a na­tion­ally syn­di­cated colum­nist.

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