Tax plan unveiled to help middle class

WASHINGTON – The Democrats’ top tax writer in the House unveiled a $1.3 trillion plan Thursday that would cut taxes for millions of middle-income Americans, raise them on the wealthy, and do away with the alternative minimum tax, which is increasingly hitting more taxpayers of modest means.

Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, called his proposal “the mother of all tax reforms.” Republicans called it the “mother of all tax hikes” and vowed to fight it.

Even if his proposal faces an uphill battle, it is likely to produce the mother of all lobbying efforts on Capitol Hill and become a controversial issue in the presidential race. Rangel said he did not expect passage this year and wanted to see how it would fly in 2008.

Treasury Secretary Henry Paulson said the Rangel plan “would dramatically raise taxes in ways that in my judgment would hinder America’s ability to compete in the global economy. The proposed new surtax on individual income would burden millions of small businesses and undermine job creation.”

Rudy Penner, former head of the Congressional Budget Office and now at the Urban Institute, a think tank, said the package seemed complex and predicted it would have a tough time passing. “Now, very rich people are giving to Democrats,” Penner said. “Now there is a question whether they will tolerate a very large tax increase.”

After this year, the plan would repeal the alternative minimum tax, or AMT, a levy originally designed to tax the rich but which now ensnares many middle-class people because it was never indexed for inflation. It would raise the standard deduction and enhance the earned income tax credit for the poor. And it would slap tax surcharges on wealthy people while cutting the corporate tax rate, although many corporate tax breaks would be closed.

Rangel called for Congress to pass his proposal in the next few weeks to “patch” the alternative minimum tax for 2007 so that it doesn’t hit another 23 million taxpayers. That proposal alone would cost $47.1 billion over 10 years. The plan would make up for the lost revenue by raising taxes on executives of hedge funds and private-equity managers.