Back in March, I ran a post titled, “Be Afraid. Be Very Afraid.” I asked the question, “Did anyone really believe that with a Congress controlled by Democrats we would be looking at lowered spending and/or a decrease in taxes?”
The answer has been clear from day 1, and it came more into focus today. Representative Charlie Rangel (D-NY), chairman of the House Ways & Means Committee, proposed sweeping tax legislation today. The legislation, which has no chance of being enacted into law in its current form (see below), would:
– Lower the top corporate tax rate from 35.0% to 30.5%;
– Eliminate LIFO (last-in, first-out) accounting for inventory;
– Defer deductions of foreign subsidiaries of corporations until funds are repatriated into the U.S.;
– Eliminate the Alternative Minimum Tax (AMT) after 2007;
– Add a 4% surtax on incomes above $150,000 (single)/$200,000 married filing jointly (MFJ);
– Add an additional 0.6% surtax on incomes above $500,000;
– Increase the Earned Income Credit, and the Child Tax Credit; and
– Have a one-year patch for the AMT.
The devil is in the details, of course, and I haven’t seen them. And since except for the last part of the bill (the one-year patch), this bill will not be signed into law in this legislative term (the term ending in 2008), it just gives a flavor of what might be if we have a Democrat in the White House in 2009.
Why am I harping on this? Because of what’s not mentioned in this legislation. Many of the Bush tax cuts will expire (beginning in 2009). Ask your legislators whether they will vote to extend them. The legislation introduced today implies that they’re dead (at least in the view of Congressman Rangel). We’re looking at a $200 Billion stealth tax increase!
Much of this legislation seems good to me. For example, I’m all for simplifying the Tax Code. However, a major issue—one which Democrats seem to ignore—is that if you increase the tax rate, the tax collected tends to decrease (the Laffer curve). This is definitely the case when this occurs on the wealthy. Indeed, because of the prevalence of S-Corporations and LLCs, much of the income of the “wealthy” is actually business income. If taxes increase on business income, business owners have far less incentive to innovate and provide additional jobs.
One day the American people will realize that a simple flat tax system is the way to go. Until then, be afraid.
Link to New York Times article here