Rangel’s Tax Attacks!

We’ve already noted some of the problems in Charlie Rangel’s tax bill. Today, the WSJ piles on, giving us a pretty solid rundown of much of what’s wrong with proposal, which we’re now, I think, legally* required to refer to as the "mother" of all tax hikes.

But where Mr. Rangel really gets busy is with his plan for a long-term “revenue neutral” AMT fix. He wants to abolish the AMT permanently and greatly expand “refundable tax credits” for low income families, while adding a 4% income tax surcharge on anyone who makes more than $200,000 a year, or 4.6% if you make $500,000 ($250,000 for singles). Mr. Rangel also wants to raise the capital gains tax rate to 19.6% from 15% today, and raise taxes on dividends, business partnerships, and companies with foreign subsidiaries. Add it all up and you get new taxes of $1 trillion or more.

All of this is done in the name of tax “fairness,” but it’s hard to see how this would make the U.S. code more equitable. Millions of those who’d receive the tax credits already pay no income tax, so they would merely be getting another government subsidy. The group that gets slammed hardest is the entrepreneurial class. Tax Foundation data show that three of four taxpayers in the highest income tax bracket are small business owners or farmers. If Mr. Rangel’s plan ever becomes law, look for millions of Americans and small-businesses to “incorporate” themselves so they can pay the lower corporate rate. Previous tax reforms have tried to keep the corporate and top income tax rates equal precisely to avoid this kind of tax gaming.

This speaks to the need for fundamental reform to the tax code. It’s a giant, loophole and jargon-filled mess right now, and there’s not a single person alive who really, honestly, fully understands all of it. That means that whatever you add to it, whatever twists and turns you insert hoping to produce some effect or another, will always lead to further manipulation, further exploitation. The way to fix this isn’t to bulk up on rules, credits, exclusions, and other poisonous legislative fluff, it’s to simplify. The tax code doesn’t have to be longer than your senior year biology text book. People will moan and complain about tax reform, because everybody wants something out of it. But really, there’s an easy way to do it.

*Not really.

Addendum: James Pethokoukis asks whether Rangel’s tax bill would simply "reverse Reaganomics."