Rep. Charles B. Rangel's Tax Reduction and Reform Act of 2007 is misnamed. It should be called the Tax Reallocation and Complication Act of 2007 or perhaps the Accountants and Financial Planners Full Employment Act of 2007.
To be sure, the bill would reduce the income taxes paid by, according to Mr. Rangel the Ways and Means Commitee chairman, 91 million Americans, mostly by getting rid of the alternative minimum tax.
The New York Democrat's bill would repeal the AMT but also would subject many of those who now pay it to an income tax surcharge of 4% or 4.6% of adjusted gross income (not taxable income, which is lower). Any couple earning $200,000 a year would pay the 4% surcharge and would pay 4.6% on the excess over $500,000.
This surcharge alone would generate more revenue than the repeal of the AMT would cost the government — $831.7 billion — versus $795.66 billion over 10 years.
The bill would also tighten the limitations on, and the phaseout of, itemized deductions for families earning more than $500,000 a year, raising another $28.58 billion annually.
These are the big-ticket items that would likely affect the clients of accountants and financial planners, but there are others that will complicate their lives.
For example, shareholder em-ployees of Subchapter S corporations and partner-employees of partnerships would be hit with rules changes that would lift an estimated $9.4 billion out of their pockets over 10 years.
Investors would hand an additional $4.27 billion over to the government over 10 years, as the bill requires brokers to provide cost basis reporting on transactions.
Accountants and financial planners who advise
hedge fund managers would see those clients' tax burdens increase by an estimated $25.66 billion over 10 years, as the managers' carried interest would be taxed as ordinary income "to the extent that carried interest does not reflect a reasonable return on invested capital" — whatever that is.
Mr. Rangel's bill theoretically would reduce corporate income taxes but then would change so many corporate tax deductions and rules that many companies would have to pay more in taxes.
His reallocation goal is revealed not only in the limitation of the benefits of the repeal of the AMT and the resulting significant tax in-creases for many, but also in the modification of the earned-income credit for individuals with no qualifying children. The bill would double to 15.3% the credit of earned income and more than double the phaseout amount to $10,900 at a cost of $29.14 billion over 10 years.
Mr. Rangel focused on shifting the income tax burden to the top 5% of taxpayers, leaving the estimated $140 billion Americans spend each year complying with the tax code unchanged, if not in fact increased.
