The BNA RealTime for Oct. 24 scopes out the Rangel proposal, "The Tax Reduction and Reform Act of 2007" that will repeal the AMT and lower the statutory corporate tax rate, based on information BNA has gathered from lobbyists, staffers, and legislators. The following summarizes the information in that report.
The AMT (an alterative tax system that, when applicable, taxes a broader base of income than the regular tax sytem, but at a lower rate than the top marginal rate under the regular tax system) would be repealed. In its stead, a new surtax would be enacted on capital gain and dividend income (currently taxed at highly preferential rates) of high-income taxpayers. The surtax would be somewhat progressive (starting at 4% and rising to 4.6%). It would apply only in the case of taxpayers with adjusted gross incomes of more than $200,000 (joint returns) or $150,000 (single returns). That means it won't hit little guys at all, which is good. The top rate for the surtax would be reached for those with AGIs of half a million.
The lowering of the statutory corporate rate, to just over 30%, would be paid for in part by repealing a few breaks that complicate the Code mightily without making any sense from a policy perspective--the Section 199 manufacturing deduction added to the law when Congress repealed the exporter tax break and LIFO (last in first out) accounting. The manufacturing deduction was written into the Code when Congress eliminated the tax break for exporters under international pressure, showing that Congress didn't know how to take advantage of a reasonable situation to eliminate a bad subsidy without enacting another bad one. LIFO accounting has been around for much too long as a taxpayer-favorable accounting mechanism that doesn't make economic sense--there have been attempts to behead the LIFO monster before, so we'll see how far this one will go. BNA says a third source of revenue would be deferring the benefit of some deductions for controlled foreign corporations until the related income is repatriated. Eliminating deferral altogether would make more sense (and relieve the Code of lots of complications), but that's a step in the right direction.
Instead of the big bill, Congress will have the option to pass a little AMT patch and one year extension for all of the Bush expiring provisions. It is likely that a majority of Congress sees the AMT patch as a must-do provision, so that makes the revenue raisers to offset the high cost more interesting. Levin's bill on the taxation of carried interest income is a likely candidate, and the need to pass the AMT provision may be the jolt necessary to get Congresspersons who are currently on the fence on the carried interest provision to jump off on one side or the other. According to BNA, another revenue raiser will be taxation of offshore arrangements for deferred compensation.
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