Democrat Focus Will Be On Middle Class Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

10 November 2006

Charles Rangel, the Democrat in line to take over the powerful House Ways and Means Committee, has hinted that tax cuts for the middle classes will take precedence over investment tax cuts in a Democrat-controlled Congress.

Speaking after the dramatic reversal of the balance of power in Congress following the mid-term elections, which has given the Democratic Party control over both chambers of Congress for the first time since 1994, Rangel promised to work with Republicans to iron out the legislative agenda on taxation, but said that issues such as reforming the Alternative Minimum Tax and renewing lapsed personal tax cuts should be a priority in the short-term.

"Once we lay the groundwork and involve Democrats and Republicans in the process, we’ll be in a stronger position to work together on big-ticket items like simplifying the tax code," he commented in a statement.

"In large part, middle class families feel ignored by the Administration’s tax policies, and Democrats will bring their voice to Congress. We’ll work to provide tax relief for middle income families to help them afford the cost of health care, education and protect them from the growing threat of the alternative minimum tax to provide economic security for all Americans," he went on to state.

The Alternative Minimum Tax is a shadow tax system originally designed to ensure that wealthy individuals cannot reduce their tax liability to zero through deductions and tax breaks. However, since the tax isn't indexed to inflation, it is beginning to eat into the ranks of the middle income earners, and it is projected to raise the taxes of more than 21 million taxpayers in 2006, and 52 million taxpayers by 2015. Full repeal of the tax would cost $1.2 trillion in lost revenues over ten years.

"Tackling this very complex problem would be a good test of bipartisanship and certainly makes more sense to me than deciding what we're going to do in 2010," Rangel later told reporters, indicating that he sees continuation of the 2003 capital gains and dividend tax cuts beyond their 2010 expiry as a low priority.

Republican efforts to cut estate tax for all but the wealthiest families, which were opposed by the majority of Democrats, are also likely to be off the agenda.

However, Rangel said he wanted to start work on other aspects of President Bush's tax cuts, such as the R&D tax credit and the state sales tax deduction, as soon as next week.

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