Democrats and taxes

Much as I agree with the FT's editorial on Charles Rangel's new tax bill, one point bears emphasising. If passed (which, as the leader pointed out, it won't be) the bill would provide a permanent fix for the Alternative Minimum Tax and improve the efficiency of the corporate income tax by broadening its base and lowering its rate. Its distributional implications are modest and, as far as they go, desirable. Which is all well and good. As compared with other ways of fixing the AMT, notably patching it year by year, this is fine.



But remember that the tax cuts of 2001-06 are mostly due to expire by 2010. The Rangel bill, of course, does not forestall that event. As things stand, a significant tax increase is therefore in the pipeline, unless the next administration intervenes to modify the way tax rates reset (which it will). And that is not the end of the uncertainty, because the social-security tax is yet another candidate for an increase. (Barack Obama, for instance, has talked of raising or removing the income cap.)



In short, the Rangel bill does not show that Democrats plan no swingeing increases in income taxes after 2008. It shows only that they see an intelligent way to be rid of the AMT. The "mother of all tax reforms", as Mr Rangel called his bill, is not in any sense a comprehensive reform and leaves a lot of questions unanswered.

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