## Make over \$150K? Rangel’s Gunning for You

Rep. Charles Rangel (D, NY), Chairman of the House Ways and Means Committee is looking to overhaul the current tax system. He’s got all sorts of ideas, summarized in this story (or this PDF summary), but I just want to point out to one portion:

Middle and upper-middle income families would benefit under the plan by a repeal of the alternative minimum tax starting Jan. 1, 2008.
Upper-income families, however, would pay for that repeal with a 4% surtax on incomes above \$150,000 for a single earner or incomes above \$200,000 for a married couple. That surtax would grow to 4.6% for incomes above \$500,000.
The surtax will also make possible an expansion of the earned income tax credit, an increase in the standard deduction, and an increase in the value of the child tax credit for those earning too little to owe federal income taxes.

If this surtax came to pass, I can hear the conversations now? “Hey boss, I’m thinking that I’d be happy making \$149,999 this year, how’s that sound?” I guess another solution would be for everyone looking to make \$150K could shoot for \$156.5K to roughly offset the new “surtax.” Then again, we all know that people don’t modify their financial decisions based on tax policy, so I’m sure that the numbers will all work out based on static economic models (ahem).
UPDATE: Andrew makes a great point in the comments:

I just did a couple of back-of-the-envelope calculations…
1. Statistics show that the average married couple in America involves 2 people. I think that’s why they’re called “couples”.
2. \$150,000 times 2 equals \$300,000
So a married couple has to pay the surtax on \$200,000 of total income, while an unmarried couple doesn’t have to start paying the tax unitl \$300,000.
Doesn’t this take the marriage penalty to new heights, and beg the question of why the government is so hostile to married people?

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Editor
16 years ago

Upper-income families, however, would pay for that repeal with a 4% surtax on incomes above \$150,000 for a single earner or incomes above \$200,000 for a married couple

I just did a couple of back-of-the-envelope calculations…

1. Statistics show that the average married couple in America involves 2 people. I think that’s why they’re called “couples”.
2. \$150,000 times 2 equals \$300,000

So a married couple has to pay the surtax on \$200,000 of total income, while an unmarried couple doesn’t have to start paying the tax unitl \$300,000.
Doesn’t this take the marriage penalty to new heights, and beg the question of why the government is so hostile to married people?

16 years ago

Great point Andrew!

chuckR
16 years ago

In the past, the way the surcharges worked was on a floor – so at \$150K there’s no surcharge, at \$160k, its an additional \$400 from 4% surcharge. But it does combine in ‘interesting’ ways with the rolloff of personal exemptions. I don’t know where your Schedule A deductions start to be lost, but I’ll bet its a double whammy. And of course, there’s always the AMT to deal with. That is of more concern to more people, because its possible to get caught at much lower income levels. The WSJ cited a situation where a married couple with an income of \$75k and five kids could be caught – too many personal deductions.

Tom W
16 years ago

Let us not forget too that (like they’ve already done with Medicare) they’re pushing eliminating the “wage cap” on Social Security “contributions” – so there’ll be yet another whammy on upper middle class couples.
And as with the existing Social Security “contributions” the excess funds won’t be deposited in a “trust fund,” but immediately redirected to fund “critical government programs” such as bridges to nowhere.

Anthony
16 years ago

The Democrats have also proposed a bill that would cap the mortgage interest deduction as well. Leave it to the liberals. While the rest of the world tries to figure out how to prevent bad mortgage debt from dragging the entire economy down, Democrats discuss a proposal to make it worse.
Why? They apparently believe that larger homes “contribute” to global warming and should receive a full deduction.

Anthony
16 years ago

that last line should have read “…and should NOT receive a full deduction.”

Editor
16 years ago

>> They apparently believe that larger homes “contribute” to global warming and should not receive a full deduction. << Ridiculous. Such a tax "adjustment" would have zero impact on anthropogenic global warming, even if it were a real phenomenon. Sounds like a really lame excuse to raise taxes.

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11 years ago

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