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Rangel Challenges Administration On Tax Reform

by Leroy Baker, Tax-News.com, New York

05 November 2007


Reacting angrily to criticism of his latest tax reform proposals, House Ways and Means Committee Chairman Charles Rangel has sent an open letter to Treasury Secretary Henry Paulson, challenging the Bush Administration to outline its plan to reform the tax code.

Rangel recently introduced the Tax Reduction and Reform Act of 2007, which he claims would provide "overwhelming relief" to individual taxpayers and corporations through a repeal of the alternative minimum tax (AMT) and a significant reduction in the corporate tax rate.

Rangel has touted his bill as the most comprehensive overhaul to the US tax code since the 1986 reforms, but his proposals have been derided by Republicans and administration officials, including Paulson himself, who last week called on the New York Democrat to rethink his proposed AMT and business tax measures.

While Rangel's bill looks appealing on the surface with its proposal to eliminate AMT for all but the richest taxpayers and a 4.5% cut in corporate tax, its critics point to the devil in the detail, namely offset provisions such as the new 'surtax' on upper income families, changing the tax treatment of fund managers' 'carried interest', and the repeal of many deductions and breaks for both individual and company taxpayers.

The negativity directed towards the bill has seemingly prompted an angry response from Rangel, who now accuses the Bush administration of failing to put its money where its mouth is regarding its once grand ideas for tax reform.

"President Bush has been in office for nearly eight years and yet we have received no bill, no suggestions, and no direction. It is easy to be critical, but if not this bill, what would the Administration recommend that we pursue to meet these goals?" Rangel asked in his letter.

On his proposal to cut corporate tax, an exasperated Rangel wrote: "During a meeting before the Ways and Means Committee earlier this fall, you shared your view that our corporate taxes are much higher than those of other industrialized nations. That is a concern that Committee Members took seriously. I proposed a reduction in the corporate tax rate from 35 to 30.5 percent in my bill. Mr. Secretary, please share with me – if we are going to have a revenue-neutral corporate tax reform bill - where would you raise the money to compensate for the revenue lost by a reduction in the corporate tax rate?"

Rangel argued that it is not possible to come up with a new AMT fix without raising taxes elsewhere, unless there are potentially deep cut backs in spending programs, which are unlikely to be sanctioned by a Democrat controlled Congress.

"If we prevent the AMT from falling on 23 million additional taxpayers this year, this will result in an estimated $50 billion in revenue that will not be collected by the Federal government," he wrote, adding:

"You have stated that we should not close existing loopholes or eliminate narrowly-targeted benefits in the tax code to recover that cost to the treasury, so I assume the Administration would propose a reduction in Federal programs to cover the cost of an AMT patch."

He concluded: "Mr. Secretary, I ask you, which programs does the Administration recommend cutting to ensure that the cost of this patch does not add to our Federal deficit?"


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