Last April, House Ways and Means Committee Chairman Charlie Rangel (D-NY) told Tim Russert on Meet the Press:
- “You could rearrange the [tax] rates and come out without a tax increase and more equity in the system. It has been more than 21 years since Congress and the Administration rolled up their sleeves to discuss tax reform, and during that time the tax code has become a jumbled mess of outdated and inequitable provisions that cry out for simplification.”
That tax reform from 21 years ago was the Reagan Tax Reform Act in 1986. Is Charlie Rangel saying he wants to return to the tax reforms of Ronald Reagan!? If so, we’re for it.
But alas, that’s probably not the case. Rangel likes to quote billionaire Warren Buffett’s recent railings about the tax code, such as last week when Buffett told a congressional panel “take a little more out of the hides of people like me.”
Now if by “people like me” Buffett means that Congress should take more taxes from all of those people whose net worth is estimated at $52 billion, well, it’s not good tax policy but we won’t throw much of a fit.
But what Buffett—and Rangel—really want is a steeply progressive income tax. In other words, it sounds like the tax reform Rangel wants to revive is not the 1986 Reagan tax-reform model, but the pre-John F. Kennedy model, in which the marginal rates for the highest incomes were in the 90-percent range.
Why is it that when Buffet, Rangel, et al talk about a progressive income tax, they invariably come up with proposals that raise the tax rates on the wealthy rather than lowering the tax rates on everyone else, which is the better way to create a progressive income tax.
Ironically, if by “progressive income tax” Buffett’s ultimate goal is to have the wealthy pay a greater share of the tax burden, lowering the tax rates is the best way to achieve it.
For example, while Rangel likes to rail about the inequity of the 2001 and 2003 tax cuts, IRS statistics reveal that the top 1 percent of income earners took home a smaller share of income and paid a higher percentage in taxes in 2004 than they did in 2000, before the tax cuts occurred. In 2000, the top 1 percent took home 17.8 percent of income and paid 36.5 percent of taxes. In 2004, after the tax cuts occurred, this same income class took home 16.3 percent of income and paid 36.7 percent in taxes.
The lesson here—from both the Kennedy and Reagan tax reforms—is that the income tax can be more progressive, but that will only come by cutting the top rates, not increasing them.