Senior Democrat proposes U.S. tax overhaul [Rep. Charles Rangel..........]

Reuters ^

[eraser2005]

Before joining the lemmings screaming that this is a massive tax increase, I’d like to know one thing:

What will the effective federal tax rates be for the various quintiles, top 1%, top 5%, top 10%, etc, be under the new scheme?

The AMT hits those at the top the most. That is a give. So if you take away the AMT and replace it with another tax, how much of an increase is it in reality?

In 2004, the top 1% paid an effective income tax rate of 19.6% (not counting social insurance, corporate, or excise taxes) on average pretax income of $1,259,700. So they aren’t even paying close to the 35% rate that hits the vast majority of their income. Nor are they, on average, getting clobbered by the AMT.

Now, if you take away the AMT at 26% and replace it by bumping up the rates on the higher end tax brackets, what does it do to the effective rates?

It is possible (though not likely with Rangel at the helm) that there will be very little change in effective tax rates. Is it really a tax increase then? I’d argue if there is no change in effective tax rates, it is simply a simplification of the tax code, and a good one at that.

Think of it this way: say you have two tax system options:

1) 30% tax bracket on all taxable income, but if you deduct more than $50,000, they tax you on those deductions over $50,000 at a 20% rate.

2) 40% tax bracket without that alternative system (remove the $50 cap).

Then say you earn $200,000 per year and deduct $75,000. Under system 1, you pay 150*.3+25*.2=$50,000 in tax
Under system 2, you pay 125*.4=$50,000 in tax.

Which system do you prefer? Your effective tax rate is identical under both systems. In system 1, it looks like you have a lower tax rate than in system 2. But system 2 is a much simpler tax code.

[Ouderkirk]

plenty of ‘hign income’ folk didn’t “REALLY earn it”. Look at Theresa Heinz-Kerry, $5 million a year in dividend income. Note that none of these changes would affect that, though - it’s taxed at the 20% long term capital gains rate.

You ahve inadvertently stumbled into the real truth. The rich are already rich and they don't have earned income. They have capital gains. If you pull in 5 mil in capital gains who needs a job? A job is earned income and taxable at the ordinary income tax level. Let's see ol' Charlie Rangle propose a 40% wealth tax on assets over 5 million. Lets see how long those wealthy socialists like the gin soaked ketchup dowager and her ski bum, boy toy husband support that!

[PreciousLiberty]

“You ahve inadvertently stumbled into the real truth.”

No inadvertent stumbling involved, it’s a loophole I’ve been aware of for some time...I’ll take advantage of it someday I hope. ;-)

With my luck, the Fair Tax will be implemented just before I amass enough capital to really matter. lol

[AU72]

Democrat IRS Long Form:
1) How much money did you make?
2) Multiply by 1.25
3) Pease send it in.

[Barb4Bush]

If she got that money for sleeping with John Kerry I’d say she earned it; but since she got it for sleeping with John Heinz; I guess you have a point.

[EQAndyBuzz]

“Anyone earning under 200K qualifies for SCHIP.
Anyone earning over 200K pays for it.”

You are joking, right?

[phillyfanatic]

Can you imagine that if Newt could run the House campaign, how he could use this horror to the Pub’s advantages? If any so called Independent, Moderate Dem can vote for Charlie’s nonsense , they are really the mind numbed zombie. No Republican should ever vote Dem this time around if they understand what Rangel is proposing. But, some will to punish the Pubs.

[kalee]

I wonder what Rangel’s tax bill looks like. How much does he make, how much does he pay in taxes and what loopholes does he avail himself of? Inquiring minds 9mine anyway)would like to know.