The new surtax that Rangel wants to impose on working Americans would also affect an estimated 24 million small businesses that pay their taxes through individual tax returns. Many will lose deductions that lower their taxes on business income, while incorporated businesses will benefit from a rate cut. Rangel Democrats say these higher tax rates will only be applied to the rich, but GOP strategists say that argument instinctively triggers doubts among most taxpayers.
"Whenever the Democrats say they are raising taxes on the rich, most of the public thinks it will hit the middleclass, and Republicans will start making that argument," said Cesar Conda, a veteran economic-policy strategist and adviser for Mitt Romney.
Despite this mind-boggling gaffe by Rangel, Republican tax-cut champion Jack Kemp, the high-energy architect of the Reagan tax-cut agenda of the 1980s, offers words of caution for his party. "It isn't enough to be against Rangel's bill, we have to offer our own proposals. He has, to his credit, begun a debate over tax reform that lowers the corporate tax rate from 35 percent to 30 percent," Kemp told me.
Polls show that taxes remain a key issue for millions of Americans who think they're too high, and Kemp thinks that it could throw Democrats on the defensive next year.
"If Democrats were to endorse Rangel's plan, it would definitely lead to Republican gains in the House and Senate. If our presidential candidate spells out what is wrong with the Rangel bill and proposes a tax system that is flatter, simpler and fairer, we'll have a winning issue in 2008," he said.