The LA Times article is depressing no matter which side of the issue you view it from. Here are what I think are the salient points, with Chairman Rangel's bill highlighted.
All of the major Democratic presidential candidates would allow President Bush's tax cuts for wealthier households to lapse. Most support raising the cap on income subject to Social Security taxes. Some want to raise taxes on capital gains and other investment income.
Rangel's bill centers on abolishing the alternative minimum tax, which was enacted in 1969 to keep rich people from using deductions to wipe out their income tax bills. Because the tax is not indexed to inflation, it increasingly hits the middle class. Lawmakers of both parties see this as an urgent problem, but it would cost more than $1 trillion over 10 years to get rid of the tax entirely.
Couples earning less than $200,000 a year would not be subject to the alternative minimum tax under Rangel's bill. The lost revenue would be replaced by instituting a surtax of up to 4.6% on the income, capital gains and dividends of higher earners. The bill also would provide additional relief for middle-income taxpayers.
"I don't understand why somebody who makes $50 million a year pays Social Security tax on the first $97,000 . . . and not all the rest, while somebody who makes $85,000 a year pays Social Security tax on every dime of their income," Edwards said.
Full disclosure: I have not looked at the details of Mr. Rangel's Bill or any of the candidates' published campaign stances on taxes. I am relying solely on the LA Times piece. As the devil lives in the details, my opinion is subject to change.
Let's do a back of the napkin analysis of these proposals, and see if there is enough there to warrant digging deeper.
The Smell TestThe Edwards Equation:
"The top 300,000 income-earners in America now make more than the bottom 150 million combined," former North Carolina Sen. John Edwards said when he unveiled his plan to raise taxes on the rich and cut them for the middle class.Putting on my green eye shade I can see that 300,000/
229,300,000 X 100 = 0.131%
My take is that Edwards' appeal is emotional. This is fair, I guess, but I am not particularly interested in emotional theatrics. He may get a few more votes promising to raise taxes on 0.131% of taxpayers, but I don't believe that his idea can provide much relief to the other 99.869% of us. Are my 'Bell Curve' critics still denying that these uber-rich in Senator Edwards' crosshairs are outliers?
Edwards is pandering in my opinion.
Rangel and the AMT Elimination of the AMT "would cost more than $1 trillion over 10 years", so Chairman Rangel proposes raising the floor to $200,000 (the AMT formula is more than a little complicated - this number is neither the Gross nor Adjusted Gross) annual income. He would make up for the resulting shortfall in revenues by "instituting a surtax of up to 4.6% on the income, capital gains and dividends of higher earners."
This is more detailed than the Edwards plan, and shifts the burden up the income ladder, for sure. As you can imagine, I have great difficulty with the inclusion of capital gains and dividends income, but if the floor is to be indexed for inflation (which is a gaping flaw in the current AMT), I'd say this seems like a legitimate proposal that should be discussed. The AMT needs fixing.
FICA CapsEdwards is right. The cap should go.
The BasicsAgain, Edwards is right: "Our tax code has shifted most of the burden onto the backs of working Americans."
The Bottom LineI wish I could believe that the discussion of tax policy by the candidates was more than just electioneering. I'm not yet convinced.
I would stand to gain more financially from a continuation of the current system, so I will be watching carefully as the campaign heats up. But I'm not too worried, because I'll adjust if that becomes necessary.
