Citizens for Tax Justice has released a report on H.R 3970, the tax reform legislation introduced in the U.S. House of Representatives by Ways and Means Chairman Charles Rangel (D-NY) on October 25. For individual taxpayers, the bill would repeal the Alternative Minimum Tax (AMT), improve tax provisions for low-income people (including the Child Tax Credit and EITC) and replace the revenue by closing loopholes and creating a surtax that would reduce the Bush tax cuts for the richest Americans.  Generally, only those with incomes above half a million dollars would pay higher taxes overall than they do today. On the corporate tax side, the bill would sharply cut the top corporate tax rate and pay for that by eliminating some inefficient and unfair corporate loopholes.

On balance, Citizens for Tax Justice supports the Rangel bill because it would make the tax code simpler and fairer without making our fiscal situation even more dire.

To read the report, click here: http://www.ctj.org/pdf/rangelbill.pdf

While these goals sound sensible to the average American, the Republican leadership in Congress has a hostile reaction to any proposal to raise any tax or close any tax loophole, no matter how egregious. 

Some members of Congress have even rallied around the loophole for "carried interest," a type of compensation paid to private equity fund managers. The loophole allows fund managers to earn hundreds of millions of dollars and yet still pay taxes at a lower rate than middle-income people. CTJ and other organizations have argued for months that elimination of this loophole would be justified even if Congress did not need to raise any revenue. Similarly, opponents of reform have attacked any tax increase, in any form, on the wealthiest one percent of taxpayers, who will get the majority of the benefits from the Bush tax cuts by 2010.

Help for Low-Income Included

Also included is a change in the Child Tax Credit rules to make it easier for poor families to benefit from the credit, as well as a small additional standard deduction for middle-income homeowners. These two provisions combined cost about $4 billion over ten years.

Another provision would delay the implementation of a tax break that was passed in 2004 but is not yet in effect. The 2004 tax break essentially expands a loophole allowing multinational corporations to take U.S. tax deductions for interest payments that are really foreign expenses. The provision delays this tax break several years and raises $25 billion over ten years.

Republicans members of the committee were hostile to the offsets and argued during the markup of the bill that the AMT should be repealed and the revenue should not be replaced because it was never intended to be collected. This ignores the fact that the Bush Administration intentionally decided not to permanently fix the AMT when it enacted tax cuts in order to mask the true cost of those tax cuts. It also ignores the fact that the Bush Administration, like Congress during both Republican and Democratic control, has budget plans that assume the expanded AMT revenue (based on current law under which the AMT will expand its reach) will be collected.

Congressman Earl Blumenauer (D-OR) pointed out the irony of the minority party's argument. Republicans at the hearing seemed to say that the expiration of the Bush tax cuts -- which was written into the laws enacted by President Bush and the Republican Congress, along with the scheduled expansion of the AMT that was intentionally left in place when Republicans controlled Congress and the White House -- would lead to the "biggest tax increase in history." Even if we believed that allowing the tax laws to exist as they're currently written could constitute a tax increase, it would be hard to understand why the complaints are coming from the party that held power and passed a major tax bill every year for six years.

Tax Reform Debate Underway in Maryland

The Maryland General Assembly last week began a special session to consider Governor Martin O'Malley's $1.7 billion deficit reduction package, holding hearings on each of the key elements in the package.  ITEP staff testified on a number of the tax policy changes the Governor has recommended, including a more progressive personal income tax rate structure, an expansion of the sales tax base and an increase in the sales tax rate, and efforts to close corporate tax loopholes through the adoption of combined reporting.  The Center on Budget and Policy Priorities has also released several helpful reports on the Governor's tax proposals, detailing ways to generate additional tax revenue in Maryland and to protect low-income taxpayers from regressive tax increases.  Progressive Maryland and the Alliance for Tax Fairness will hold a statewide Town Hall Meeting on Tuesday, November 6 in Annapolis to give concerned citizens an opportunity to express their support for a more equitable tax system.  As the Washington Post opines, the fate of Governor O'Malley's proposal is uncertain, but the need for action - and for important reforms like a more progressive income tax and a more robust corporate income tax - are clear.

 

Florida: Confused Yet?

Florida's property tax reform debate may finally be nearing an end - and, then again, it may not.  During a special session in June, the Legislature put a plan on the January 2008 ballot to allow homeowners to choose between their existing "Save Our Homes" property tax assessment caps and a so-called "super-exemption" of up to $195,000.  That plan was then removed from the ballot by a Leon County court in September because it would have been too difficult for voters to understand.  Then, last Monday, the last possible day to do so, the Legislature approved an alternative plan to increase the existing homestead exemption and to permit current residents to take their "Save Our Homes" assessment caps with them when they move, thus putting property tax reform back on the ballot.  Yet, as the Miami Herald points out, the state's Taxation and Budget Reform Commission, which itself has the power to put matters before the voters, could come up with another approach for the voters to consider next November.  What's more, creating "portability" for "Save Our Homes" may well violate the U.S Constitution, as an analysis by Walter Hellerstein and others found back in February.

Given the particulars of the Legislature's latest plan, a different approach would certainly be warranted.  As the St. Petersburg Times observes, the Legislature's latest plan "... takes what's wrong with the current property tax system and amplifies it. The unfair advantage long-time homeowners have over more recent home buyers would be extended. The shifting of the tax burden from homesteaded property to non-homesteaded property would be exacerbated. And the cost for making matters worse would be indefensible."

The Miami Herald offers its compiled coverage on the whole sorry saga here.

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