Clinton and the Tax Hiker-in-Chief

Oct. 27, 2007 — -- Sen. Hillary Clinton, D-N.Y., Democratic presidential front-runner, will campaign this weekend with a man Republicans paint as the tax-hiker-in-chief.

At the Abyssinian Baptist Church in Harlem Saturday morning, Clinton will be joined by her husband and one of her most important supporters, Rep. Charles Rangel, D-N.Y., 77, a respected congressman and eminence grise both inside the Beltway and north of 125th Street. But the presence of Rangel is suddenly something of a political double-edged sword for the senator after Rangel unveiled a controversial tax plan this week.

Rangel, chairman of the House Ways and Means Committee, insists that his comprehensive tax reform bill (LINK) would "restore equity and fairness" into the tax system. "Ninety million taxpayers will walk away saying, 'I've got a decrease in taxes,'" he told reporters.

But by also proposing more than $1 trillion in tax increases, Rangel has handed Republicans a political issue to use against Democrats -- and Clinton -- even if the GOP officials don't quite paint the whole picture in their final computation, ignoring Rangel's proposed tax cuts for middle-class Americans and some businesses.

The Mother of All Tax Hikes

Rangel had referred to his bill, introduced Thursday morning, as "the mother of all tax reforms." But seizing on the tax increases in the bill, not the tax reductions, Republican House leader John Boehner, R-Ohio, instead called it "the mother of all tax hikes."

"You know, very seldom in politics do your opponents give you this kind of gift," said Rep. Roy Blunt, R-Mo., the House minority whip. "Very seldom in politics do your opponents say, 'If we could just elect a president and if we can hold on to the House and Senate, here's what we're going to do: We're going to raise taxes.'''

"As our economy grapples with a housing downturn, the last thing we need is a tax increase," said Treasury Secretary Henry Paulson.

And Clinton's counterpart, national GOP front-runner Rudy Giuliani, said Rangel's proposal, if passed, "would be devastating to our economy."

Some Taxes Down, Others Up

Clinton campaign spokesman Phil Singer told ABC News that "Sen. Clinton and Rep. Rangel share the broad goal of progressive tax reform. We welcome Rep. Rangel's leadership on this issue and will study his proposal closely."

At the centerpiece of Rangel's legislation is an elimination of the $870 billion alternative minimum tax, or AMT. The AMT was originally established to ensure that wealthy Americans pay a minimum amount of taxes. But since it hasn't been formally adjusted for inflation, the AMT has threatened to hit middle-class taxpayers, though each year Congress attempts to remedy this with a temporary "patch."

It's that patch that has Rangel's counterpart, Rep. Jim McCrery, R-La., the Ways and Means Committee ranking member, saying Rangel is "selling pure snake oil" when he says that he is eliminating the AMT.

Rangel's plan also reduces the corporate marginal tax rate from 35 percent to 30.5 percent at a cost to the Treasury of $364 billion over the next 10 years, eliminates $106 billion in tax breaks for companies that do business overseas during that time, and gives $29 billion in income credits over a decade to the working poor.

But the plan also raised a number of taxes on corporations and wealthier Americans. Private equity firm managers who currently pay the 15 percent capital gains tax rate on carried interest -- from other people's money that they invested -- would instead pay an income tax rate of up to 35 percent under Rangel's proposal, bringing an anticipated $26 billion into federal coffers.

"When you find people making millions, hundreds of millions of dollars, paying taxes at a lower rate than the secretaries, than the janitors, than the common laborers, there is a sense among those who pay the taxes that I don't mind paying the tax, but I don't think the liability is distributed equally," Rangel said Thursday at a press conference.

Rangel's proposed new tax

In place of the AMT, Rangel also proposes a $832 billion tax increase in the form of a 4 percent surtax on Americans who earn more than $150,000 filed individually, or $200,000 filed jointly. Those earning more than $250,000 individually would see a surtax of 4.6 percent, as would couples earning more than $500,000.

It's unlikely that Rangel's bill would be able to pass through Congress in its present form; Senate Minority Leader Mitch McConnell, R-Ky., has already declared his proposal DOA." Rangel has said his proposal is not intended to sail to the president's desk in its exact current form, but rather to create a debate over fairness in the tax system.

Rep. Tom Cole, R-Okla., the chairman of the National Republican Congressional Committee, said in an interview with Bloomberg News that the debate "sounds like a fight that I'd like to have.''

But it's unclear that Rangel's fight is one that Clinton is eager to wage.