Rangel talked about closing "loopholes," but the real money would come from drastically increasing the number of Americans paying the top 36 percent income tax rate and applying that rate to present capital gains taxpayers. Rangel also is considering the old millionaires' tax, but applying it to much more than millionaires: a surtax on household incomes over $200,000. All this would reverse the tide of across-the-board tax reduction begun by John F. Kennedy and Lyndon B. Johnson and renewed by Ronald Reagan.
While Rangel appears to be preparing for big-time tax increases in 2009, he is giving it a try for 2007. Something surely will be done to blunt AMT this year, and Rangel is holding it hostage with ransom to be paid by left-wing tax revision. Even if it will not enable passage of the "mother of all reforms," it could force passage of more limited redistribution this autumn.
In his meeting with reporters last week, Paulson claimed to be puzzled that Congress had not yet passed an AMT patch this year. But he is not nearly so clueless. He understands Rangel's game and takes it seriously. Paulson views a tax increase as the worst medicine for today's economy.
Indeed, Paulson is alarmed that the U.S. advantage in tax policy is gone, with corporate taxes here now higher than those of foreign competitors. However, cutting corporate taxes, no matter how desirable for the sake of American prosperity, is no part of Charlie Rangel's desire to make history.