Proposed tax increase could mean trouble for those in all brackets

Editorial

Democrats say it will restore equity and fairness while Republicans say it’s the biggest tax increase in history, $3.5 trillion over 10 years.

The brainchild of House Ways and Means Committee Chairman Charles Rangel, D-N.Y., would juggle $1 trillion in tax cuts and tax increases to shift burdens and relief. The so-called tax “reform” isn’t likely to pass. Not this year, anyway. But it’s a peek into the future should Democrats, who control Congress, also get control of the White House.

What Republicans label “the mother of all tax hikes” is an example of how Democrats view taxation. Democrats vow a “revenue neutral” approach, promising tax cuts offset either by tax increases or cuts in spending.

We won’t hold our breath for spending cuts from a Democrat-controlled Congress. What’s left of the promise assumes every dime extracted in taxes is absolutely necessary. A casual familiarity with the federal budget disproves that assumption.

Don’t expect kind-hearted tax cuts without corresponding pain from a Democrat-controlled government. That’s exactly what Rangel would deliver.

His “reform” would relieve some middle-class taxpayers of the threat of the Alternative Minimum Tax, something they don’t pay anyway because of temporary protections provided by Congress. Rangel would shift the burden to people earning more than $200,000 a year, including a 4 percent surcharge on couples filing jointly, increasing to a 4.6 percent surcharge for singles making $250,000 and couples earning $500,000.

Rangel would cut the corporate tax rate slightly, but compensate with new burdens on small businesses operating as partnerships, sole proprietorships and S corporations, and eliminate numerous tax deductions.

The motive is similar to that for adopting the AMT in 1969: to guarantee that “rich” people benefiting from tax exemptions would pay some income tax. Over the years, increasing numbers of the middle class found themselves identified among these “rich” people because the AMT wasn’t indexed for inflation. Only a series of patchwork fixes have shielded them, but those temporary protections expire this year, making anyone earning more than $75,000 vulnerable.

Rather than just eliminate this onerous tax, Rangel would replace it with new soak-the-rich schemes. But the “rich” targeted by Rangel are largely small-business owners and farmers. To avoid their new tax burden, many may incorporate to pay Rangel’s lower corporate rates.

In effect, to replace the AMT — designed to tax people whose legal exemptions allowed them to pay less tax — Democrats would instead tax people who can be expected to protect themselves by opting for a different tax category to avoid paying the new tax.

Schemes like Rangel’s merely perpetuate the hide-the-pea game forced on people who want only to keep what they rightly earn, rather than feed the voracious federal appetite.

Meanwhile, overall the new tax burden is estimated by the Heritage Foundation to result in up to 250,000 jobs lost per year.

Rather than just eliminate the onerous Alternative Minimum Tax, Rangel would replace it with new soak-the-rich schemes.