Thus, Rangel’s legislative blueprint would keep those dollars flowing to Washington. Rangel proposes to replace the AMT with perhaps the largest tax increase in history - a new 4% surcharge on single and married filers with incomes of $150,000 and $200,000, respectively. The surcharge would be set even higher -- 4.6% -- for those with incomes above $500,000. He also has additional tax increases in mind for savers, investors and entrepreneurs.
Because his blueprint envisions allowing the Bush tax cuts to expire, it would effectively increase the top marginal tax rate from 35% to 44.2%. The current tax burden -- i.e., the amount that would be collected if the Bush tax cuts were extended and Congress continued its recent practice of “patching” the AMT -- would explode by $3.5 trillion over the next decade. Yet Rangel doesn’t consider this $3.5 trillion a tax increase. Only Washington liberals can argue that your exploding tax bill isn’t really a tax increase!
From an international perspective, the higher rates move our tax code in exactly the wrong direction. Most countries have abandoned the sort of confiscatory marginal tax rates that prevailed when Ronald Reagan was first elected. According to The Heritage Foundation’s Index of Economic Freedom, the highest marginal rate in the world today -- Chad’s 65% -- is lower than the top U.S. rate (70%) in 1980.
With our current top rate of 35%, the U.S. ranks 84th in the world, tied with such economic powerhouses as Rwanda, Ethiopia, Sierra Leone and Azerbaijan. Under Rangel’s proposal, the U.S. would plummet to 132nd, alongside moribund European welfare states such as Spain, France, Denmark, the Netherlands and Sweden. Add in state tax burdens, and the picture darkens: Taxpayers in 29 states face top rates of 6% or more, enough to push their combined federal-state tax rate above 50%.
On the corporate side, though, Rangel donned a rare supply-side hat. He proposed a significant drop in the top corporate rate, from 35% to 30.5%, and the elimination of various corporate tax deductions.
Of course, we could do better. The Treasury study estimates that we could lower the top corporate rate to 27% simply by eliminating special-interest deductions and redirecting those lost revenues to rate cuts.
The rest of the world isn’t waiting. Time to catch the wave.