Rangel has set out a trillion-dollar revenue neutral tax reform proposal to repeal the AMT and lower corporate tax rates by increasing (slightly) the taxation of those at the upper end of the income distribution and eliminating a number of (silly, in my view) corporate tax avoidance provisions written into the Code. Congress is also prepared to consider a one-year patch to the AMT that would be paid for by taxing the incredibly highly paid managers of hedge and equity funds as though their income from managing the funds were compensation (which it clearly appears to be) rather than gains (which they currently claim in many cases for partnership asset sales, as their "share" of the partnership profits grows enormously from year to year under the "carried interest" provisions).
Hedge fund manager lobbyists are hitting Congress hard on the carried interest provision, and there is lots of ink about the lessening likelihood of any such action. I mean, tax extraordinarily wealthy people who give lots to congressional campaigns the same way ordinary people are taxed, when the wealthy people earn compensation income? That would be soooo unfair, the lobbyists are claiming. (how so? not so.) It would be such a turnoff that the managers just wouldn't keep working, lobbyists claim. (oh, you must be kidding--you wouldn't work for $650,000 instead of $850,000? Well, I bet another smart gal would step right into your shoes.....) Well, it would be a turnoff to the whole economy, lobbyists claim--no more managers doing what they do so well ripping companies apart to sell off for more than the whole was worth, or similar stuff. (part of me says to that--yippee yeah, we've got too much of that kind of activity with short term profits and long-term grief; the other part of me says to that--of course it will still go on, if it is economically sound--that's the whole reason for equity funds, so they aren't going to go out of existence just because Uncle Sam gets a little bit of his share.) But Congress doesn't make many of its decisions based on what's good for the country or what's fair to the ordinary taxpayer. Too many of the decisions are influenced by where the money comes from, which is the hugely destructive force on democracy that this blog raises in its questions about money and sustainability of democracy.
And for the long term tax reform? Rangel apparently is open to comments, according to today's BNA Daily Tax Report. He says the White House has carped but hasn't come out with anything useful. And the lobbyists don't want to raise taxes on the wealthy (even though the wealthy have had a heyday of tax cuts, resulting in years of deficits instead of years of surpluses, under Bush) but they don't want to be seen as mean to the little guy on the AMT either. So they want their pie (tax cuts for the wealthy retained) and eat it too (repeal of AMT, which they couldn't do originally when they enacted the tax cuts, because it was so clearly too big a bill to force on the future). Rangel is saying--put your ideas on the table, then, but it'd better be something over than pass the bill without paying for it!
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