From Dow Jones:
Corporations would see their top tax rate cut to 30.5% from 35% under a tax plan unveiled Wednesday by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., to fellow committee members.
Rangel plans to publicly announce the plan Thursday morning.
To offset the cost of the lower tax rate, the plan would alter a number of business tax provisions, according to lawmakers, congressional staff and lobbyists familiar with the plan as outlined Wednesday night.
The plan will repeal a tax deduction for domestic manufacturers. It will prevent companies from using an accounting method known as last-in, first-out, or LIFO, that can cut their taxes during times of rising prices. Repealing LIFO could result in a substantial tax for companies currently using the method, but aides briefed on the plan say the change would be phased in over eight years, thereby blunting the initial impact.
The plan would also require companies to defer deductions for certain expenses of foreign subsidiaries of U.S. companies until the money is repatriated to the U.S.
Middle and upper-middle income families would benefit under the plan by a repeal of the alternative minimum tax starting Jan. 1, 2008.
Upper-income families, however, would pay for that repeal with a 4% surtax on incomes above $150,000 for a single earner or incomes above $200,000 for a married couple. That surtax would grow to 4.6% for incomes above $500,000.
The surtax will also make possible an expansion of the earned income tax credit, an increase in the standard deduction, and an increase in the value of the child tax credit for those earning too little to owe federal income taxes.
A third section of the plan would address a number of pressing tax issues, including a temporary patch of the alternative minimum tax prior to Jan. 1, 2008, and the extension of a number of expiring tax provisions.
Part of the cost of the third section of the bill would be offset by taxing carried interest paid to financial managers as regular income and not as capital gains. While some said the change wouldn’t apply to real estate investment trust managers, a source familiar with the plan said all industries are included.
- The lowering of the corporate income tax. This isn’t as low as I would prefer, but still a step in the right direction.
- The elimination of the AMT.
- The closing of corporate welfare loopholes. Angry lobbyists are a good thing.
- This new surtax on high income earners is absurd. I am opposed to this tax on philosophical grounds, but more importantly, the bar is set too low for such a surtax regardless of one’s political philosophy. By including those with incomes above $200,000, you are placing an increased tax on many small business owners.
- Taxing carried interest as earned income. I would be okay with this provision if we eliminated the tax on dividends and capital gains for everyone else…
This bill is unlikely to become law by any stretch of the imagination, but nevertheless, this bill is important because it provides a glimpse of the debate regarding tax policy in the next few years including during the next presidential election.