FreedomWorks, Tax Relief Coalition: Rangel Tax Bill Threatens Economy

(October 26, 2007) … The Tax Relief Coalition (TRC), a coalition of more than 1,000 trade associations, business organizations and corporations [including FreedomWorks], representing more than 1.8 million businesses across the country, has serious concerns with a broad tax reform proposal introduced October 25th by House Ways and Means Committee Chairman Charlie Rangel (D-NY).  While the bill contains several welcome tax reforms—including repeal of the individual alternative minimum tax (AMT), permanent expensing for small businesses and a corporate rate cut—the offsetting tax increases in the bill could seriously harm the U.S. economy.  These tax increases are above and beyond the tax hike already built into current law when the tax cuts of 2001 and 2003 expire.

TRC members agree with Chairman Rangel that the AMT is flawed and should be repealed.  At the same time, we do not agree that the best way to address this serious problem is through a “replacement tax” and other punitive provisions indiscriminately levied on higher-income taxpayers.  This approach is in no way a “fair” substitute for – or even related to the purpose of – the AMT.  As we have said in previous communications to Congress, the Tax Relief Coalition opposes “paying for” AMT reform or repeal. 

The original intent of the AMT was to tax wealthy individuals who escaped the regular income tax through purportedly “excessive” use of legal tax provisions.  Moreover, there is almost universal agreement among policy makers and the general public that the AMT was not intended to hit most middle-class taxpayers.  Consequently, the TRC believes strongly that it is wholly unreasonable to keep the government “whole” by replacing that revenue with taxes collected from other working Americans.  Taxpayers should be protected from the unintended expansion of AMT; the federal treasury should not be protected from its repeal.

Worse yet, the income tax surcharge proposed in the Rangel bill to raise the revenue necessary to repeal AMT would raise the effective income tax rate for many taxpayers and businesses from 35% to 44%.  This extreme and dangerous tax hike would do incalculable harm to America’s small businessmen and women – the entrepreneurs who create most of the new jobs in our economy.  Even more insidious, this tax surcharge would apply to Adjusted Gross Income (AGI), not taxable income; thereby effectively negating the effect of the deductions and exemptions currently in the tax code.

Further, proposed repeal of the Last-In, First-Out (LIFO) method of accounting and the lower of cost or market method would be very unwise.  These long-standing generally accepted accounting methods have been in use by a wide array of American businesses, and there is no good reason to force them to change to other systems of accounting for inventories.  To tamper with companies’ consistent application of accounting methods is a thinly-veiled attempt to inflate company profits to milk them for tax revenues.  The effects on financial statements also would be confusing to lenders and stockholders, disruptive to the market, and cause companies to incur significant accounting costs to make the changes. 

The Tax Relief Coalition is a strong supporter of pro-growth tax relief and will continue to work to secure fair and balanced changes to our tax code that benefit all taxpayers and help to ensure or nation’s durable economic growth, but will actively oppose Chairman Rangel’s legislation in its current form.