Heritage Foundation Analyzes New Tax Reform Proposal

The Heritage Foundation has published a new web memorandum analyzing the recent tax reform proposal introduced by Representative Charlie Rangel of New York. The memorandum, titled "The Rangel Tax Bill: Roses Among the Thorns" and authored by Dr. J.D. Foster, is available on the Heritage Foundation's web site.

According to the memo, the tax reform proposal by Representative Rangel is dead on arrival and is highly unlikely to be passed by Congress, even with some changes. However, the memo notes, the proposal will probably make its way to the next Congress, especially if Democrats retake the White House in the 2008 election.

Dr. Foster writes that the new proposal would effectively increase taxes around half a trillion dollars over the next decade, primarily on small businesses, although Republican staffers estimate the total could be more around $3.5 trillion. Part of the plan, the memo states, involves an extension of the Alternative Minimum Tax patch that is paid for with tax increases on other taxpayers not affected by the patch. The end result, Dr. Foster says, will be higher tax rates, fewer jobs and lower pay. Additionally, the memo notes, the tax reform proposal calls for increases in tax rates in each subsequent year after passage.

Despite its shortcomings, though, the memo says that there are some positive aspects to the tax reform bill. According to Dr. Foster, the new tax reform proposal repeals the entire Alternative Minimum Tax system, which the memo says should have already occurred. The proposal also calls for a decrease in the corporate income tax rate by 4.5 percent in order to make U.S. firms more competitive in both international and domestic markets.