A senior Democrat in charge of tax writing at the U.S. House of Representatives released his $1.3 trillion proposal to overhaul the tax system, raising taxes for the rich, cutting rates for many middle-income Americans and eliminating the alternative minimum tax.
Rep. Charles Rangel from New York, the chairman of the House Ways and Means Committee unveiled the proposal at a news conference in Washington. The proposal is expected to ignite intense lobbying. Rangel does not expect representatives to vote on the bill before the end of the year.
The plan would keep the tax revenue at its current level but cuts for low and middle income earners would be offset by higher charges for higher income people and companies.
Tax Changes for Individuals and Couples
Affecting married couples with incomes less than $200,000, the biggest cut would be the elimination of the alternative minimum tax (AMT). The tax had been created to tax the wealthy but now is affecting middle-class earners because it did not take into account inflation.
The cut would save them $795.6 billion over 10 years. To offset the savings, Rangel proposed a "replacement tax" targeting couples earning over $500,000, or $250,000 for singles, generating $831.70 billion.
Ending the AMT would put in place limits on itemized deductions and personal deductions usually claimed by wealthier earners.
Rangel says he will attempt to pass a temporary AMT fix to keep as many as 25 million taxpayers from paying when filing their tax returns for the 2007 fiscal year.
Proposed Changes for Business Taxes
The top corporate tax rate would be cut from 35 percent to 30.5 percent. However to compensate for the $360 billion reduction over a 10-year period three major business tax breaks would be cut.
A domestic manufacturers' tax credit would be repealed, raising $115 billion in that period.
Another tax move would raise $106 billion over 10 years by placing limits on company tax breaks for profits earned abroad, requiring firms to repatriate income domestically before claiming reductions.
Doing away with an accounting method called "Last in, first out," or LIFO would boost revenues by $106 billion.
Investment fund managers would be charged more by changing carried interest taxes, raising $25.66 billion.