Deserves a better fate

26 October 2007 By Martin Hutchinson

The liberal Congressman s tax plan abolishes the alternative minimum tax, taxes alternative asset managers like normal people and lowers the corporate tax rate, all while remaining revenue neutral. As such, it deserves respectful analysis and passage without major modification. It won t get it.

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Rep. Charles Rangel (D. NY) the House Ways and Means Committee Chairman announced a major tax overhaul on October 25. The bill calls for repealing the alternative minimum tax for individuals. This is estimated to cost $796bn over 10 years and is paid for by a 4% to 4.6% income tax increase on incomes above $200,000.

Hedge funds and private equity funds will be made to treat carried interest as ordinary income rather than capital gains, will have to pay tax on income in offshore vehicles and their managers will have to pay tax on deferred compensation into an account as it accrues. This provision would raise $48bn.

The corporate tax rate will be reduced from 35% to 30.5% at an estimated cost of $363bn, paid for by tightening rules on controlled foreign corporations, simplifying the tax code and abolishing LIFO accounting for tax purposes.

There are also moderate tax reductions for lower incomes, costing $86bn.

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