Has Charlie Rangel transformed into a Laffer Curve, free-market thinker? Not quite. Bloomberg reports that Rangel has agreed with John McCain on reducing the corporate tax rate, but Rangel plans to pay for it by stripping out deductions, effectively raising taxes on corporations instead:
New York Representative Charles Rangel said he’s revising his tax overhaul proposal to reduce U.S. corporate tax rates to 28 percent, down from the current rate of 35 percent.
Rangel, in an interview with Bloomberg Television’s “Money and Politics,” said he’s changing the “mother of all tax reform” he unveiled in September 2007 to accommodate President- elect Barack Obama’s agenda. That earlier plan would have set the corporate tax rate at 30.5 percent. Rangel is the chairman of the House Ways and Means Committee, which oversees tax policy.
Sounds good so far, right? Rangel lets the other shoe drop in the details:
In July 2007, the Treasury Department said the U.S. could reduce the corporate tax rate to 25 percent by eliminating popular benefits such as a research credit and a deduction for making products domestically.
Rangel two months later also recommended repealing the deduction for domestic production, other incentives that primarily benefit multinational corporations, as well as tax benefits associated with a popular accounting method known as last-in, first-out.
This sounds a little odd after listening to Barack Obama the last two years. Rangel now wants to eliminate the tax credit associated with manufacturing goods inside the US? What happened to the pledge to give tax breaks to companies that kept manufacturing jobs in America? The elimination of the research credit also comes at a strange time, given Obama’s insistence on the need for research into green energy solutions.
Rangel also wants to slap a surcharge on the rich. In addition to hiking the upper tax rate to 39.6%, Rangel wants an additional 4% added to those who make as little as $200,000 per year. That makes the overall tax rate for those incomes 43.6%, and it includes people whom Obama promised a tax cut during the campaign.
What does Rangel want to do with the extra income he thinks he’ll get from these tax hikes? Rangel wants to fund the tax credits that Obama promised to the middle class, of course, enabling the redistributionism on which Obama won the election. Of course, as manufacturing jobs move overseas in greater numbers and people have less capital to invest, jobs will disappear, and the government will have much less wealth to transfer than Obama and Rangel predicted. We’ll see more tax hikes as they attempt to deliver on their populist promises, which will damage the economy even further, and start a tailspin for the American economy that neither Rangel nor Obama can stop with their economic ideologies.
When Rangel talks tax cuts, always look for the fine print.