You've got to give House Ways and Means Chairman Charley Rangel some credit. He promised the "mother of all tax reforms" and that seems to be what he delivered. Now his proposal, ostensibly to eliminate the alternative minimum tax, has almost zero chance of passing. But it does set the stage for a huge tax fight in 2009. As investment firm Goldman Sachs put it in a note to clients today: "This bill is very unlikely to become law before the 2008 election, but is important because it signals the possible direction of tax reform efforts in 2009 if Democrats control both the White House and Congress." And the crux of that fight is going to be this: Should we radically change the economic direction of this country by reversing the low-tax bias of national economic policy?
In short, should America reverse Reaganomics?
Consider this: President Reagan's tax cuts in the 1980s lowered the top marginal income tax rate from 70 percent down, eventually, to 28 percent. By itself, Rangel's plan would more or less reverse the Bush tax cuts of 2001 and 2003 by tacking on a 4.6 percent surtax on higher incomes as well as phasing out the number of itemized deductions taxpayers can take. (Capital gains taxes go up, too.) What's more, the bill does nothing to keep the Bush tax cuts themselves, which are due to expire at the end of 2010. Finally, you have Democratic proposals to deal with Social Security solvency by eliminating the income cap on payroll taxes. Add that all together and what you get, as economist Kevin Hassett of the American Enterprise Institute told me today, is an effective top marginal rate of right around 70 percent. That's right where it was during the Jimmy Carter years. "I think the Democratic war on the rich is such an emotional thing for them that they are willing to take the rates back to where they were before Reagan took office." Now keep in mind that Hassett leans to the right, but it seems hard to dispute that the Rangel bill could mark a critical inflection point in the direction of the American economy. But maybe that is what America wants. As a new Bloomberg-L.A. Times poll found, 60 percent of respondents said they would repeal the Bush tax cuts to pay for universal healthcare. But would they go all the way and repeal the Reagan tax cuts, too?