The above link is an Associated Press article describing the tax plan proposed by Charlie Rangel, Democrat Chairman of the House Ways and Means Committee. This is the article that was picked up by most newspapers that do not have the resources to research and write the article themselves. This includes all but the largest newspapers such as the New York Times. The link is from the print edition of the Atlanta Journal Constitution. So most people's print understanding of the proposal comes from this article.
It is a great example (in a sorry sort of way) of how the media passes on the Democratic message without any true analysis or skepticism. Rush Limbaugh calls it the "drive by media" due to the superficial nature of coverage combined with a natural tendency to accept what the Democrats say as good and true. The media is just lazy.
To read the article without any other source of information the reader is left believing the the following:
- The plan will provide "tax cuts to almost all families with incomes under $500,000."
- Rich people, implied to be families that make more than $500,000 a year, will pay somewhat higher taxes.
- Rich families will be subject to a phase-out of deductions and exemptions.
- The corporate tax will be lowered from 35% to 30.5%. Some companies will have to pay a little more.
- $29B in additional money will be paid out through the earned income tax credit (not a tax reduction as the recipients don't pay taxes)
- $9B in additional child credits will be paid out.
- The Alternative Minimum Tax will be eliminated.
- 91 million families will receive tax relief.
What has John Abrams of the AP left out? Well, here are a few items:
- Families making over $200,000 a year will pay a 4% "surcharge". This surcharge will be against total income instead of taxable income which means it will subtract from all itemized deductions such as the mortgage deduction. So it is actually a bigger hit than 4%.
- The marginal rates will be raised from including raising the top marginal rate 35% to 39.5%. This tax rate increase is separate from the 4% surcharge. The surcharge is on top of this.
- I'm not sure what John Abrams means by saying that the rich will be subject to "a limitation on itemized deductions and a phase-out of deductions for personal exemptions." I can't imagine what these might be. If you make more than $200,000 as a family most of the deductions are already phased out. Then the AMT eliminates much of everything else. Since this phase-out will raise $29B for the government I can only assume that Rangel is integrating many of the AMT deduction caps into the mainline tax code.
- Carried interest, which is the capital gain that is paid to hedge fund and private equity managers as pay for performance, will be redefined as ordinary income raising the tax rate on these gains from 15% to 44%.
- A number of other measures will be enacted pulling in many tens of billions from companies.
- The 91 million receiving tax cuts number is smoke and mirrors. 20M are have already been shielded from the AMT by a previous GOP patch. Many more millions only receive a "cut" if you assume that the 10% rate expires and that the $1,000 child credit expires (both provided through the GOP tax cuts of 2001 and 2003). Others that will benefit from expanding the earned income tax credit don't actually pay taxes. We're just going to redistribute more income to them.
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