Offers rebuttal to tax-reform proposal

On Oct. 25 Rep. Charles Rangel (D-N.Y.) introduced his framework for, as he put it, "the mother of all tax reforms."

One of his stated goals is the repeal of the alternative minimum tax (AMT), saving approximately 20 million taxpayers from its diabolical reach.

To make up the anticipated revenue shortfall required by Congress' pay-as-you-go rules, Rangel proposes a surtax ranging from 4-4.6 percent, based on income, be assessed to highincome taxpayers. This surtax, in effect, would raise the marginal rate of federal income tax on upper incomers to greater than 40 percent.

This proposal would be effective for 2008 if Congress passes it next year (an unlikely event considering that next year is a major election year), while Congress would pass a one-year "patch" for 2007 to alleviate the damage by having the AMT exemption revert back to pre-2003 levels.

Unfortunately, Rangel once again fails to address two factors in his tax-the-rich proposal. First, as recently reported by the Internal Revenue Service, high-income earners in this country already pay a disproportionate share of the income tax. The highest 10 percent based on adjusted gross income (AGI), those with $103,900 of AGI, pay 70 percent of the income tax while representing only 46 percent of the income reported. Conversely, the bottom 50 percent of the population, as measured by AGI, pays only 3 percent of the income tax, which, in part, is so low because of existing child tax credits and the earnedincome credit.

Second, and more esoterically, his plan does not consider geographical income disparity relative to regional cost-of-living indexes. Taxpayers most negatively affected by this plan would come from the high-costof living states like New York, New Jersey and California, where residents, generally, have higher incomes than their Middle-America brethren, even though they may not enjoy a higher standard of living. I do not believe it would be a cumbersome task for Congress to address this issue.

I recommend, if Congress is intent on taxing the rich while providing breaks to low incomers and corporate America, that it re-examine the preferential rate of taxation on dividends received and providing a partial corporate deduction for dividends paid to shareholders. This is a win-win-win scenario, as corporations would pay less tax, and individuals would have additional disposable income to spend but would necessarily pay more taxes to the government based on taxing those dividends, again, at ordinary tax rates.

Kirk A. Bonamici Certified Public Accountant

Spotswood