Friday, November 9, 2007

Who benefits and who loses from the Rangel Tax Bill

The Tax Policy Center, which is jointly run by the Urban Institute and the Brookings Institution, has analyzed H.R. 3970, Rep. Rangel's "Tax Reduction and Reform Act." Rep. Rangel's bill is a revenue-neutral proposal that would eliminate the Alternative Minimum Tax, increase the standard deduction for household tax filers, expand the Earned Income Credit for low-income families, and make the Child Tax Credit refundable. To keep the country from going further into debt, it would balance these decreases by increasing tax rates for high-income households, returning some restrictions on deductions and exemptions for high-income households, and changing the way that investment fund managers can treat their income so that their income is taxed as earnings rather than as capital gains. The bill would also simplify corporate taxes, eliminating several deductions but also lowering overall rates.

Researchers at the Tax Policy Center looked at how households in different income groups would be affected. They concluded that 57 percent of households (86 million households) would end up with lower tax bills as a result of this proposal, while only 2.4 percent of households would end up with higher bills. On average, households with annual incomes below $500,000 would pay less under Rep. Rangel's proposal, while households with higher incomes would pay more. The researchers calculated that "almost no one earning below $100,000 would receive a tax increase."

On average, the benefits would be highest--both in absolute and in percentage terms--among households with incomes between $100,000 and $500,000. Many households in this income range would gain from the elimination of the AMT; however, some other offsetting tax increases would also kick in in this range.

Among households with incomes above $500,000, about 80 percent would see a tax increase. Average payments for households with incomes between half a million and a million dollars would rise 2.2 percent, while average payments for households earning over a million dollars would rise 4.5 percent.

Math-challenged Republicans continue to criticize Rep. Rangel as proposing "the largest individual income tax increase in history." For most sensible people, that would be an odd way of describing a plan with no net revenue impact, that benefits 57 percent of households, and that leaves another 40 percent untouched. Of course, it's not so odd at all if your goal is to steer more money to America's richest and most powerful households and you have no qualms about sticking today's children with the bill.

A permanent fix to the AMT is long overdue. Given the large existing budget deficit, our ongoing military commitments, and the swelling and underfunded entitlements for the elderly, we cannot afford to put another tax cut for rich households "on the tab." Rep. Rangel's responsible plan deserves serious consideration.


Anonymous said...

This is definitely a good article, and an important issue. While this is something that I oppose, I think that the Congress needs to have a full debate regarding this, on both sides.

Paul Ryan has introduced a solution that I believe is definitely feasible for the problems we currently have and I'm hopeful that will pass.

I urge everyone to contact their member of Congress and urge them to take this matter seriously.

You can do that for free at this here:

(AMT is the third one down)

Bubba said...

Ah yes, the use of rhetoric to camoflauge the real deal.

Are not some of Rangel's "tax cuts" simply measures that keep the temporary Bush tax cuts frim sunsetting?

By the way, the course of my current business trip, I met a former CMS official who found your explanation of Medicare Advantage as an "add on" to Meidicare as "troubling".

I tried to find those passages in your archives to point out to him, but I was unable to do so.
Have you moved them, or did i just overlook them?

Dave Ribar said...

The Taxpayer Choice Act, in its current form, would be unacceptable. While Republicans currently bemoan the "redistribution" in Rangel's plan, the Republicans' own analysis of their plan (see the bottom of p. 3) shows that it too would redistribute the tax burden--only the redistribution would go from the wealthiest tax payers down to the poorest tax payers. So there is no Republican opposition to redistribution, they just want it to go toward upper income households.

How much would taxes change for poor families under the Republican plan? Again, according to their own numbers, taxes paid by people in the
- bottom fifth of the income distribution would go up 133%
- second lowest fifth of the income distribution would go up 40%, and
- middle fifth of the income distribution would go up 6%.
Those tax increases would go to pay for tax "relief" for people in the upper two quintiles. Again, all from their numbers.

Dave Ribar said...


Your research skills are as underwhelming as your rhetoric. The Medicare Advantage discussion occurred on your blog.

Bubba said...

Ah, thanks for pointing that out, Dave. I had thought we had discussed them on a SCHIP-related thread here.

My ex-CMS friend was interested in seeing your exact comments. I'll be sure to forward them to him.

Let's see his reaction to your "rhetoric" on the subject.

Bubba said...

Regarding the Rangel proposal, perhaps we need to talk about this aspect.


"Many beneficiaries of the tax break are campaign contributors to the lawmaker, Representative Charles B. Rangel, Democrat of New York, according to data collected by CQ MoneyLine, which tracks political contributions.

At least one of them, Richard G. Vento, is currently under audit, according to court filings. Mr. Vento gave $4,400 last year to the Baucus-Rangel Leadership Fund, which supports Mr. Rangel and Senator Max Baucus, the Montana Democrat who heads the Senate Finance Committee.

"Beneficiaries of the tax break including Michael W. Masters and Richard H. Driehaus, money managers, accounted for more than half the $51,900 that individuals in the Virgin Islands gave last year to Rangel for Congress, the chairman’s campaign organization. Mr. Rangel raised almost three times as much from such donors last year as in any other year in the MoneyLine database."

I think we can find a better way to make the burden of the AMT disappear without the counter-productive tax increases this bill would impose on the investor class.

Plus, an ethics investigation would seem to be in order here.

Bubba said...

Meanwhile, this Bloomberg article puts all this in its proper perspective.


"n terms of revenue, Rangel's reform would be the biggest tax increase in history. Compared to a baseline where President George W. Bush's tax cuts are extended and the dreaded alternative minimum tax isn't allowed to swallow millions of taxpayers whole, the bill raises taxes by a whopping $3.5 trillion over the next 10 years, according to the office of Representative Jim McCrery of Louisiana, the top Republican on the Ways and Means Committee.

To put that in perspective, that's about $2 trillion more than the 10-year cost of the Bush tax cuts enacted back in 2001."

Of course, that's probably just "underwhelming rhetoric" and "math challenged" to you, Dave.

I guess it's all in how you define "tax cuts", "tax increases", and how you actually measure both.

Your way seems to support a political position you like, and allows you a chance to take a pot shot at those whose position you don't like.

Dave Ribar said...


So the Republicans lied when they put sunset provisions in those tax bills. Suddenly, not letting the Republican tax cuts expire when the REPUBLICANS said they would expire is a tax increase.

Dave Ribar said...

Republican math is a marvel to behold. The $3.5 trillion tax "increase" figure that Kevin Hassett uses as its baseline a scenario where all of the 2001 & 2003 tax cuts are extended forever (something that the Republicans were not willing to do in the original legislation and that the President is not willing to include in his own budget deficit projections) and that the AMT is repealed with no replacement revenue. That baseline is the ultimate irresponsible imaginary free lunch. If the scenario were to occur, we WOULD add $3.5 trillion to the national debt over the next decade.

Rep. Rangel's bill addresses the expiration of some features of the tax cuts, extending a few things and allowing a few other things to expire. It does not address the expiration of the general rate cuts. In particular, it does not "assume" any extra revenue from those expiring rates to balance the cost of the AMT.

Rep. Rangel's bill DOES address the $800 billion cost of eliminating the AMT. In their $3.5 trillion figure, Republicans are arguing that we can simply add the loss of AMT revenue to the nation's debt.

Bubba said...

"So the Republicans lied when they put sunset provisions in those tax bills."

No the didn't. They put the provisions in to placate the whiney, obnoxious Democrats who had to be pulled into the the compromise kicking and screaming like the spoiled little children they are when things don't go their way.

Bubba said...

"Republicans are arguing that we can simply add the loss of AMT revenue to the nation's debt."

No, they would much prefer to make up the difference get rid of the Dem-infested earmarks that have oervaded in the House since the Dems took control this year.