Thursday, October 25, 2007

Rangel's Mother of All Tax Reform Plan

I have tremendous respect for House Ways and Means Chairman Charlie Rangel. And I take my hat off and give him a lot of credit for what he’s done in a tough political environment. He’s done what he can and his heart is in the right place on all this. That said, while it seems to me that he wants to recreate a sort of 1986 Reagan/Rostenkowski tax reform moment, I’m not sure he’s going to get there.

Here are some highlights from my interview with Mr. Rangel. The full interview will air tonight at 7pm ET on Kudlow & Company.

Basically, the top earners are going to see a big tax hike from 35 to 44 percent. Capital gains taxes are going to go up. Small business taxes are going to go up. And large corporate taxes would go down under this plan.

Among the many issues I raised with Mr. Rangel during our interview is that we are experiencing a slowdown in the economy. Wall Street and Main Street are worried about recession. Is this the right time to be talking tax hikes for anyone? (I think not, but then again, I don’t run the Ways and Means Committee.)

Mr. Rangel talks about raising taxes on a million people and giving everybody else a tax break. But technically, if you exempt someone from the alternative minimum tax, that’s really not a tax cut since the AMT wasn’t supposed to hit them in the first place.

And he doesn’t deal with the impact on small businesses. Small businesses add serious firepower to our economy. They are our biggest job creators. So going from 35 percent to 44 would be rather punitive.

Another problem I have with this plan is the issue of competitiveness. Look, foreign countries are in fierce competition with us. If we head in the wrong direction on taxes, we’re going to risk serious movement of capital and investment away from the United States.

There is another option. Over in the House, Republicans Paul Ryan (WI), Jeb Hensarling (TX), and others also want full-scale reform. They want to eliminate the AMT. They want full-scale tax reform and simplification. Their plan consists of two rates—10 percent and 25 percent—and abolishing virtually all of the other so-called loopholes.

Now that’s what I call big-bang, pro-growth, tax reform.