Democrats Outline Tax Approach
Relief for Middle Earners Would Be
Offset by Increases for Wealthy
By DEBORAH SOLOMON and SARAH LUECK
September 19, 2007; Page A6

Eager to avoid being branded old-style tax-and-spend liberals, the Democratic presidential candidates are starting to roll out detailed proposals to cut taxes for millions of Americans.

But unlike the across-the-board cuts being floated in the Republican field, these are aimed only at lower- and middle-income households, often crafted narrowly as credits for specific expenses, like purchasing health insurance or buying a home.

And, in a Democratic White House, any such tax cuts would be offset by big tax increases on upper-income families, investors and corporations, according to the emerging plans.

NEW ORDER


• The Idea: Democratic presidential candidates are promoting tax cuts for lower and middle classes.

• The Strategy: While candidates want to raise taxes on upper-income families to cover health care and other programs, they're wary of being accused of only backing tax increases.

• Who Will Pay: If Democrats take control, higher taxes are in the offing for wealthy Americans, including increases in taxes on investment income."For decades, we've seen a successful strategy to ride antitax sentiment in this country toward tax cuts that favor wealth, not work," Illinois Sen. Barack Obama said as he unveiled his own "middle-class tax relief plan" yesterday. "We shouldn't be distorting our tax code to benefit a few powerful special interests -- we should be insisting that everyone pays their fair share, and when I'm president, they will."

Former North Carolina Sen. John Edwards unveiled his tax-cut plan in July. Democratic front-runner Hillary Clinton has talked in general terms similar to Mr. Obama in discussing changes she'd make to the tax code, although she hasn't yet released a full tax plan.

While their prescriptions vary in detail and scope, the top three contenders are all looking to use the tax code to correct what they say are imbalances that exacerbate income disparities. Their efforts are aimed at wooing voters who are increasingly concerned about their economic security and worried about not being able to afford health care, gas and retirement.

"People feel like they're one loss of health insurance or job loss away from serious problems and the proposals are clearly playing to that," said William Gale, a Democratic tax specialist at the Brookings Institution.

But the plans are drawing criticism from some who say the candidates are pandering to voters by advocating policies that waste tax dollars instead of using the money to confront serious fiscal problems, such as shoring up Social Security and Medicare, which are forecast to run out of money once baby boomers retire.

"I have no problem with them trying to undo all or most of the Bush tax cuts for the wealthy even if it's only for a couple of years, but there are so many huge fiscal problems that we should be very careful about proposing new trivial programs when there's so many real big programs we need to do something about," said Bill McIntyre, director of Citizens for Tax Justice, a left-leaning Washington think tank.

Conservatives are attacking Democrats for using targeted tax cuts to mask what they say are really big tax increases. While Democrats are united in saying they'd let at least some of President Bush's tax cuts expire as currently scheduled, in 2010, Republican White House hopefuls are calling for an extension of the cuts as a starting point. Mitt Romney, the former Massachusetts governor, has given the most detailed Republican tax plan so far. He proposes to eliminate taxes on dividends, capital gains and other investment income for families that make under $200,000 a year -- for an estimated net reduction of $32 billion per year.

Mr. Obama, unveiling his tax plan yesterday, said his cut would equal $80 billion to $85 billion per year and would continue the trend, intensified over the past two decades -- of removing millions more Americans from the income-tax rolls.

He said he would eliminate income taxes for seven million senior citizens earning less than $50,000 per year. Another 10 million workers would no longer have to pay income taxes because of a new $1,000-per-family tax credit, which would offset the payroll tax on the first $8,100 of earnings. The tax credit would eliminate income taxes for those individuals whose income tax bill is smaller than the size of the credit and would also provide a tax break to another 140 million Americans, according to the Obama campaign. The credit would phase out for workers making somewhere between $150,000 to $200,000 per year.

Mr. Obama also proposed changing the tax code to make the mortgage-interest deduction apply more broadly by turning it into a credit and allowing taxpayers to benefit even if they don't itemize.

The changes will be financed in part by raising the tax rate on capital gains and dividend income to as much as 28%, a level last seen in 1997. That is a higher amount than the campaign had endorsed. Earlier this year, the Obama campaign said it would raise those rates to 20%.

Earlier this year, Mr. Edwards said he, too, would raise the capital-gains tax rate to 28% from 15% and boost income taxes on those making more than $200,000 to finance tax cuts and other benefits for middle- and lower-income families.

The underlying message of the Democratic candidates' plans -- that wealthier people should pay higher taxes and lower- and middle-income people should pay less -- echoes the theme many Democrats in Congress have adopted.

House Ways and Means Committee Chairman Charles Rangel (D., N.Y.) is working on a tax bill that would reduce taxes for about 90 million people, by eliminating the individual alternative-minimum tax, expanding the earned-income and child-tax credits and increasing the standard deduction. Such changes would result in a revenue loss of about $900 billion over 10 years, which Mr. Rangel said he would offset in accordance with budget rules, possibly by raising rates for upper-income tax payers, closing corporate "loopholes" and raising the taxes paid by the managers of private-equity, hedge and venture-capital funds.

A large tax package is unlikely to become law this year, as Democrats on Capitol Hill have found little common ground with the Bush administration. Still, the House Democrats' effort could lay down markers for a longer-term debate about overhauling and simplifying the tax code that would be resolved when a new president takes office.

--Tim Farnam contributed to this article

The trillion dollar tax fight
By: Lisa Lerer
October 11, 2007 08:27 AM EST

By now, everyone knows Rep. Charles B. Rangel is poised to introduce the “mother” of all tax reforms, the biggest and most expensive tax code overhaul since 1986. But what they don’t know is how the New York Democrat plans to pay the more than $1 trillion price tag — and that uncertainty is fueling rampant speculation from Capitol Hill to K Street.

The classic Washington guessing game is frustrating anxious corporate lobbyists but amusing others, including the House Ways and Means Committee chairman who started it all. “It is surprising how nervous people get when I use the words ‘fairness’ and ‘equity’ to describe our efforts to simplify the tax code and encourage economic investment,” the New York Democrat told Politico.

The fiscal fortunetellers fall into four categories: Robin Hoods, Goldilockses, Chicken Littles and Scarecrows.

The Robin Hoods predict Rangel will increase taxes on the very rich and expand breaks for the poor. Rangel’s most talked-about goal is to eradicate the alternative minimum tax, expected to hit 23 million high- and middle-income families this year.

Repealing the AMT would reduce federal tax revenue by more than $800 billion over the next 10 years — and that’s assuming the Bush tax cuts expire in 2010. With the tax cuts in place, the costs would near $1 trillion.

Robin Hoods expect Rangel to swap the AMT for a new tax targeted exclusively at the highest-income payers. One often-mentioned idea, proposed by Leonard Burman, director of the Urban Institute’s Tax Policy Center, would impose a 4 percent surcharge on unmarried taxpayers making more than $100,000 a year and couples making more than $200,000.

The 4 percent tax proposal is more progressive than the AMT, Burman said, as it would place more of the tax burden on the wealthy. Almost 58 percent of the tax would be paid by taxpayers with incomes over $1 million. Under the current AMT law, the same group will pay only 8 percent of the AMT in 2010 — again, assuming the expiration of the Bush tax cuts.

Burman’s idea carries more than a whiff of irony. The AMT was originally designed to increase taxes on high-income individuals. When it was first passed in 1969 — a year before Rangel came to Congress — it targeted 155 high-income taxpayers.

Over the past 38 years, the AMT spiraled far beyond its initial targets. By 2017, it is estimated that the tax would hit at least one-third of all taxpayers.

Burman says his proposal would raise enough money to finance a complete repeal of the AMT, but, he cautions, it is not without political peril. “The advantage is that only high-income people pay the tax,” he said. “The disadvantage is that some people are going to be paying more taxes and aren’t going to be very happy about it.”

That’s the reason another group — the Goldilockses — anticipates a slightly different landscape. This group predicts that Rangel will cobble funding together through a set of tax code tweaks. The Goldilockses say he’ll try closing different variations of the so-called tax loopholes until he finds the politically palatable mix that’s “just right,” as Goldilocks once said.

“There are a lot of problems with the code, so there’s a lot that would have to get moved around to make it work,” says Cristina Begona Martin Firvida, director of government affairs for the National Women’s Law Center. “We’re assuming that they’re thinking of moving a lot of pieces.”


The Goldilocks path wouldn’t be easy for Rangel. After all, the more industries you tax, the more enemies you make in the process.

The current debate over the so-called carried interest bill, argue the Goldilockses, is a preview of the kinds of fights to come. The bill, sponsored by Reps. Sander M. Levin (D-Mich.) and Rangel, would more than double the taxes paid by investment managers, and it has drawn the vocal opposition of much of the business community.

Academics estimate the bill would raise anywhere from $3 billion to $10 billion. (The Joint Tax Committee has yet to release a calculation.)

Another, albeit unlikely, tweak would involve reducing or even eliminating deductions for state and local taxes. The idea was proposed in the final report of President Bush’s Advisory Panel on Federal Tax Reform, put out in November 2005.

This change most likely would benefit rich taxpayers who are more likely to itemize deductions, Burman said. But those in lower income brackets would be loath to lose any type of deduction, as well — a feeling they’d certainly share with their congressmen.

Firvida and others mention an economic substance law, an idea proposed by Rep. Lloyd Doggett (D-Texas). The law would crack down on companies using shelters solely to avoid taxes. A similar idea is under consideration by the Senate Finance Committee, which estimates the law would raise roughly $10 billion.


Above all, Republicans fear that Rangel will drum up dollars by raising the 15 percent capital gains tax rate. The 1986 tax reform package raised the rate to 28 percent, the highest in more than 50 years. Since then, the rate has been lowered during both the Clinton and the current Bush administrations.

Democrats in Congress have been relatively quiet on the issue, but Democratic presidential hopefuls John Edwards and Sen. Barack Obama (D-Ill.) have supported the increase on the campaign trail.

A small but growing group of Chicken Little-style predictors are churning fears with cataclysmic claims about Rangel’s intentions. “We are looking at the remainder of the year to be ground zero for the tax fight of all tax fights,” said Rep. Eric Cantor (R-Va.). “This tax hike is going to hit the American people, businesses and investors who are, quite frankly, relying on this Congress to be fiscally prudent.”

Finally, there are the world-weary voices of the Scarecrows, who offer the sort of thoughtful analysis of perilous predicaments that calmed the character’s fellow travelers in Oz. The tax sky isn’t really falling, they say, and it’s highly unlikely Rangel will get much done before the end of the session. Rather, he’s simply setting the stage for a longer battle.

“What can I do?” asked R. Bruce Josten, executive vice president of government affairs at the Chamber of Commerce. “I can’t flail around town at every little comment or breath or utterance he makes.”

Both the administration and Senate Finance Committee Chairman Max Baucus (D-Mont.) support a one-year fix of the AMT. “What we need to get done and can get done is a patch that can fix the AMT,” Treasury Secretary Henry Paulson said in a private meeting with reporters last month.

In the House, Rangel would be waging an uphill fight to win over both Republicans and fiscally conservative “Blue Dog” Democrats. And next year, of course, the elections will steal the stage.

“A lot of time was involved in the 1986 effort,” Burman said. “It took a couple years of work and required strong support from the president. You really need bipartisan support.”

With a veto-loving president and a stymied Congress, that sounds about as likely to happen as a fairy tale.



TM & © THE POLITICO & POLITICO.COM, a division of Allbritton Communications Company

Bet Osama will EXCLUDE "special interests" like the UAW, Teamsters, Teachers Union, Postal Workers Union, Trial Lawyers Association, and ANYTHING backed by his master, George Soros.

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How soon do we get our rebates, free health care, lower taxes, better schools, and cheap energy?

We could just make it fair and allow people to have the fruits of there own labor and abolish the income tax for once.

We need to reduce the size of Federal Government, drastically. I fail to see how a 300-400 check for the middle class and poor are gonna help them in the long run, when the intrinsic spending policies of this runaway congress are creating inflation and making the money we use worthless.

satv365, great post but how are the Democrats going to pay for the massivee programs that will improve our lives?

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An informed voter scares the Goverment lackeys.

An American first and always a Conservative.

Those massive programs are the real issue. We also continue to support things like the US Postal Service (an antiquated mail delivery system); subsidies continue to be doled out to services like Amtrak and many other businesses.

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"A committee is a group of people who individually can do nothing but together can decide that nothing can be done."
Fred Allen

"A government that robs Peter to pay Paul can always depend on the support of Paul."
George Bernard Shaw

"Politics is the art of choosing between the disastrous and the unpalatable."
John Galbraith

GDF, excellent post, we need to send you to the White house.

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An informed voter scares the Goverment lackeys.

An American first and always a Conservative.

Corporate Welfare.
Subsidies.
Healthcare.
Useless social programs.
Funding for failing schools.



Democrats will tax the hell out of America. To the point of breakage. They will further bankrupt our Government by borrowing, and increasing the beauracracy ten fold. If you think Bush was bad, get Hillary or Obama in office and watch prosperity dissapear all together and we will become reliant on the State for everything.

And I mean everything.

They wont imrpove nothing.

I wonder why the dems haven't jumped on this thread to defend the programs? I bet it is because they know the leadership is out of touch with Americans.

__________________
An informed voter scares the Goverment lackeys.

An American first and always a Conservative.