NCPA - National Center for Policy Analysis


November 20, 2007

Washington is abuzz about the tax proposal introduced recently by House Ways and Means Chairman Charles Rangel (D-N.Y.).  The bill tackles a host of tax policy matters but its centerpiece proposes to repeal the Alternative Minimum Tax (AMT) and offset that revenue loss with an $800 billion tax increase on the roughly 3.5 million taxpayers earning above $200,000 a year.  The tax increase hikes marginal tax rates by nearly 5 percentage points.  Republicans have been quick to attack this tax increase on small business owners and entrepreneurs and rightly point out that the high marginal tax rates in the Rangel plan would negatively impact the economy.

Yet Chairman Rangel's proposal is not the biggest hike on the horizon, says Alex M. Brill, a research fellow at the American Enterprise Institute:

  • Today's current tax code will "naturally" deliver a tax increase to all taxpayers in 2011. 
  • While Republicans have attacked the Democrat's proposal as "the mother of all tax hikes," the biggest tax increase is the pending expiration of President Bush's 2001 and 2003 tax cuts. 
  • That hike will boost tax collections by over $200 billion a year after 2011, more than twice the size of the revenue raisers proposed by Rangel.

If Congress does not act to prevent these hikes, the impact will be dramatic, says Brill:

  • According to an analysis by the Treasury Department, for a family of four earning $50,000, it will be, an average tax hike of $2,100.
  • Five million taxpayers currently paying no federal income tax will be brought onto the tax rolls.
  • Marginal tax rates would rise for most taxpayers.
  • The tax on dividend income would more than double and capital gains tax rate would jump from 15 percent to 20 percent.

Source: Alex M. Brill, "The Real Pending Tax Hike," Washington Post, November 9, 2007.

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