Despite Charlie Rangel's Tax Problems, He Might Help Republicans Keep Bush's Tax Cuts

It's looking like House Ways and Means Chairman Charles Rangel is going to face an ethics committee investigation for, among other things, failing to report income on rental properties and supporting a tax law change favoring a big donor to an institute named after Rangel. I'm sorry to see this. I like Charlie Rangel, I think he's a decent person and a charming pol, and I'm inclined to cut him some slack because he served in the Korean War and survived some of the most horrific fighting that American men in arms have ever faced. I think it would be sad to see him lose the chairmanship of Ways and Means for sins which are more venial than mortal, just as I thought it was sad that his predecessor as chairman, Dan Rostenkowski, lost not only his chairmanship but also his seat in Congress and, for a while, his freedom for some small bits of chicanery that were dwarfed by his public policy achievements, notably in the enactment of the tax reform bill of 1986.

The more so, because I think that the tax bill Rangel brought forward in the outgoing Congress showed he was open to major changes in tax law along the lines of the 1986 bill—a lowering of rates combined with a reduction in tax preferences that have accumulated, like barnacles on the ship of state, over the intervening two decades. Rangel's bill would have cut the corporate tax rate, which is far higher than in almost any other advanced country, at least a little bit, and was intended to get rid of the Alternative Minimum Tax which, because it's not indexed to inflation, threatens to cover hugely larger percentages of taxpayers every year. Taxpayers, as I have noted several times, who are concentrated in high-nominal-income, high-state-and-local-tax, heavily Democratic states like Massachusetts, Connecticut, New York, New Jersey, Maryland, and California.

The obvious deal goes something like this. Democrats get repeal of the AMT and perhaps some increase in refundable tax credits (the latter being part of Barack Obama's tax platform). Republicans get a retention of the Bush tax cut rates on higher earners and lower corporate rates. All this is "paid for" by eliminating tax preferences. It is something that is feasible only if done on a bipartisan basis, which is possible here because Democrats do not look likely to have the 60 votes to cut off a filibuster on a major tax bill in the Senate and because there is an ongoing practice of bipartisan deals between Senate Finance Chairman Max Baucus and ranking minority member Charles Grassley. Rangel's bill is an indication that he is interested in acting on a bipartisan basis in the House and would not (as his predecessor Bill Thomas did on the 2003 Medicare prescription drug bill) exclude the minority party (in that case Charlie Rangel himself) from participation in drawing up the legislation.

One part of this deal, retention of the Bush tax cuts on high earners, now seems, given Barack Obama's postelection statements and the comments of Richard Neal, chairman of the Ways and Means Tax Subcommittee, politically palatable to the Democrats. That's contrary to my prediction that they would, whatever the circumstances, let these tax cuts lapse because left-wing Democrats would want to spread the wealth and Blue Dog Democrats would want to cut the budget deficit. These considerations seem to be trumped by the prospect (which seemed not so certain when I made my prediction) that we are facing a deep recession. As my American Enterprise Institute colleague Kevin Hassett points out, serious Democratic economists and economic policymakers, like Obama's chief economic appointees—Larry Summers, Timothy Geithner, Christina Romer, Jason Furman, Austan Goolsbee—realize that raising tax rates in a recession is disastrous public policy.

All of which lays the groundwork for a serious bipartisan tax revision bill, the prospects for which would be stronger, I think, if Charlie Rangel remains Ways and Means chairman. So I stand aside from the packs of Republican hounds who are baying for Rangel's scalp.