The Largest Tax Hike Proposal in the History of the US

Sadly, Charlie Rangel thinks that raising taxes is the answer.  The answer truly lies in reducing spending.

More entitlements, earned income credits now available for people with no children on top of those who pay no tax.  A 4% surtax for those who earn more than 150k (if single), 200k (if married), are these salary ranges of the rich and famous here?

A progressive taxing regime means that those that make the most, pay the most in taxes.  IRS and Treasury statistics support that claim.  However, Charlie now believes that those that make the most, should pay a higher tax rate than corporations.  That is unconscionable

Again, I will emphasize:  you cannot tax your constituents to prosperity.

INDIVIDUAL TAX PROVISIONS

Tax Reductions

  • Extends the AMT patch for 2007 (-$47 billion)

  • Repeals the AMT for certain individuals beginning in 2008 (-796 billion)

  • Increases the standard deduction by $425 for individuals and $850 for married couples (-$48 billion/10 years)

  • Expands the Earned Income Credit and applies it to individuals with no children (-$27 billion/10 years)

  • Expands the refundable portion of the child credit (-$9 billion/10 years)

Tax Increases

  • These provisions are paid for by “limiting” the benefits of AMT repeal for certain taxpayers.  The bill directs the Treasury Department to determine the income level at which 90% of married taxpayers would be subject to the AMT.  Income above this amount would be subject to an additional 4 percent surtax.  The 4 percent surtax would not apply to income below $150,000 ($200,000 for married taxpayers).  The surtax increases to 4.6 percent for income above $250,000 ($500,00 for married taxpayers).  (Raises $832 billion)

  • Fully restores the limitation on itemized deductions.  This limitation was supposed to begin phasing out this year. (Raises $29 billion) 

  • Fully restores the limitation on personal exemptions.  This limitation was supposed to begin phasing out this year. (Raises 7 billion)

  • Taxes carried interest earned through investment management services as ordinary income.  The summary does not indicate the effective date of this provision.  (Raises $26 billion)

  • Prohibits hedge fund managers from deferring compensation earned through the investment of offshre funds. (Raises $23 billion)

BUSINESS/CORPORATE TAX PROVISIONS

Tax Reductions

  • Reduces the corporate tax rate from 35 percent to 30 percent (-$364 billion)

  • Allows tax-exempt entitities to invest in onshore hedge funds without incurring UBIT.  Presumably, this language is modeled after the Levin bill.  We do not know at this time whether the limitatin in the bill has been retained or removed. (-$1 billion)

Tax Increases

  • Requires US businesses that defer income through foreign subsidiaries to also defer the deductions associated with that income until the income is repatriated to the United States.  This provision could have a significant impact on the financial services industry. (Raises $106 billion)

  • Repeals the election to allocate interest expense on a worldwide basis.  This election was enacted in 2004 and was scheduled to take effect beginning in 2009.  Yesterday, Ways and Means marked up a bill that would have delayed the effective date by three years.  This bill repeals the election altogether. (Raises $26 billion)

  • Requires brokers to report basis on securities sales to the IRS effective 1/1/2009 for stocks and mutual funds and effective 1/1/2011 for other securities.  Details are not available at this time.  (Raises $4 billion)

  • Codification of economic substance doctrine.  It is unclear what changes have been made to reduce the revenue estimate.  It is possible that the reduction in the estimate is simply due to interactive effects with other provisions in the bill.  (Raises $4 billion)

  • Reduces the dividends received deduction for corporations from 80% to 70% (and from 70% to 60%). (Raises $5 billion)

  • Repeals section 199 (the manufacturing deduction, which was enacted in 2004 to replace the FSC/ETI regime) (Raises $115 billion)

  • Repeal of LIFO accounting method with realized income taxed over 8 years (Raises $107 billion)

  • Increases the 15 year amortization period for intangibles to 20 years (Raises $21 billion)

EXTENDERS

  • Extends for 1 year all of the annual extenders that are schedueld to expire in 2007, including the R&D credit, QZABs, veteran mortgage bonds, special rules for RICs, and tax-free distributions from IRAs for charitable contributions.  The active financing exception under Subpart F is not extended because this provision does not expire until 2008.  Also, energy-related extenders which were enacted in 2005 are not included. (-$21 billion)

Previous Post: Mother of all tax hikes

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  1. David S. Levine

    Well, they are showing themselves, aren’t they? Demagoguery in foreign policy that may have lethal consequences for our soldiers in Iraq and attempting the largest tax increase in the history of the world. Truly, a coalition of scum, slime, filth, vermin and manure!




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