Monday, October 29, 2007

Working with Charlie

Okay, okay.

House Ways and Means Chairman Charlie Rangel’s “mother of all tax reforms” has some very serious flaws. My supply-side friends have been trashing his plan mercilessly since its unveiling late last week. And as I told Mr. Rangel, when I interviewed him last Thursday night on Kudlow & Company, raising the top tax rates on America’s most successful earners and investors is not a good idea. It’s a surefire way to damage U.S. competitiveness. It will also reduce our potential to grow (not only long-term, but in the short run, as the economy is softening.)

Still, I come to praise Mr. Rangel, not to bury him.

Charlie Rangel is the first Democrat in Washington, or on the campaign trail for that matter, to propose a pro-growth tax cut, namely a reduction in the corporate tax rate. No democrat has gone there before. That’s big stuff. It means something. Democratic leaders are backing away from Mr. Rangel due to their unwillingness to propose pro-growth tax cuts and their obsession with punishing the rich. The last pro-growth democrat to propose lower tax rates was the late President John F. Kennedy. He lowered taxes across the board for all individuals and companies. Might Charlie Rangel be part of the JFK tradition?

Supply-siders have long believed that tax reform should broaden the base by eliminating complex credits, deductions, subsidies, and tax expenditures, while at the same time reducing high marginal tax rates that impair economic growth and incentives. Right now, the most punitive high marginal tax rate under current law is the 35 percent corporate tax rate. It’s been a drag on growth and worker wages.

Incidentally, in an earlier conversation with Mr. Rangel, he told me that Treasury man Henry Paulson had convinced him of the need to reform the anti-competitive corporate tax. That tells me that Charlie Rangel is open to an important pro-growth tax reform. In that spirit, I believe Mr. Rangel deserves be treated in a more kindly and hospitable manner by my fellow supply-siders. Charlie is someone we can work with. We can do business with him.

I remember years ago, back in the early 1990s, when Charlie worked with Jack Kemp to lower the capital gains tax. This was done not only as a means of improving the sluggish economy (following the commercial real estate credit crunch), but also as a way of providing more capital to African-American neighborhoods, businesses, and entrepreneurs where the lack of outside capital choked off economic growth and prevented blacks from climbing the ladder of opportunity. Mr. Rangel’s willingness to buck his party and consider a lower capital gains tax is another reason why I believe the House’s top taxman deserves just a little more praise, and a little less criticism, than he’s been getting from my brethren.

And by the way, where are the republicans on full-scale tax reform? What we need right now is for the White House to respond to Mr. Rangel with a full-fledged tax reform plan of its own. The Bush administration had a tax reform panel in 2005 led by former Senators Connie Mack and John Breaux. And while the results of that panel were far from perfect, it could potentially constitute an important talking point in a conversation with Mr. Rangel. We need to add oxygen to the tax reform conversation, not smother it.

We also need to hear from the Republican presidential candidates on their ideas for full-scale tax reform. Let’s get specific, fellas. So far, the only candidate who has proposed anything of substance is former Arkansas Governor Mike Huckabee with his national sales tax idea called the Fair Tax. While the other GOP frontrunners have pledged to maintain President Bush’s tax cuts that expire in 2010 (obviously a good idea), so far they have not proposed any specific, far-reaching new tax reform plans. The time has come gentlemen.

If the White House weighed in, and if the Republican candidates weighed in, and if the conversation with Mr. Rangel were expanded and nurtured, rather than stymied and steamrolled, that would leave the Democratic congressional leadership and their presidential candidates as the odd person out. That creates a political opportunity.

We need to encourage tax reform by maintaining an open, friendly conversation with Mr. Rangel and nurturing additional, specific, tax reform ideas from GOP leaders. Just as I’ve always preferred optimism to pessimism, and positives to negatives, I also prefer friendly discussions to holier-than-thou trashings. Let’s work with Charlie.