Rangel tax bill jitters
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.