Tax Reform, Anyone?

Tax Reform, Anyone?

Leave it to Charlie Rangel to come up with a tax bill that is both good policy and great politics.

The "mother of all tax bills" announced last week by the chairman of the House Ways and Means Committee would shield millions of middle-class families from the dreaded alternative minimum tax, which would more than wipe out whatever benefit they received from the Bush tax cuts. Rangel also proposes to increase wage subsidies to the working poor by expanding the earned-income tax credit.

You would have thought Republicans would have a hard time opposing such ideas. But because Rangel proposes to pay for his AMT fix by repealing the Bush marginal income tax cuts for households with incomes above $200,000 a year, and by closing tax loopholes enjoyed by managers of private equity and hedge funds, Republicans immediately cranked up their Big Lie machine and attacked Rangel's proposal as the "biggest income tax cut in history."

What part of "revenue neutral" don't they understand?

Even more ingenious was Rangel's decision to call the bluff of Treasury Secretary Hank Paulson, who has been bellyaching about the 35 percent corporate tax rate and how it hurts U.S. competitiveness. Rangel's offer is to reduce the corporate rate to 30.5 percent, but pay for it by repealing a bunch of special-interest tax breaks bought and paid for by oil and pharmaceutical companies and large multinationals who park their profits in offshore tax havens.

This is the classic formula for tax reform supported by every tax expert and blue-ribbon commission: Lower tax rates while broadening the base of income that is being taxed. But Paulson wasted no time in denouncing it, claiming -- without offering a shred of evidence or a plausible economic logic -- that this reshuffling of the corporate tax burden would "hurt the ability of our businesses and workers to compete in the global economy." Another Big Lie.

If Democrats were any good at the political game, they would know how to use the Rangel proposal against Republicans who would rather impose a tax increase on emergency-room doctors with college tuition to pay than on hedge-fund traders with offshore bank accounts, and would rather give tax breaks to Pfizer and Chevron than to software firms and auto dealerships.

Unfortunately, too many of Rangel's Democratic colleagues have neither the courage nor the political skills to stand behind their chairman. Their silence says it all. No wonder, then, that 10 months after taking control of both houses of Congress, the public has concluded that Democrats are no more effective in running the place than the crowd they replaced.

Mortgage Crisis, Take 2

Could it be that the next domino to fall in the credit crisis will be commercial real estate?

There was a hint of that last week when the Financial Times reported that the Carlyle Group was having trouble nailing down financing for its $6.3 billion purchase of Manor Care. The deal involves $4.6 billion in bonds that would be backed by the nursing home's real estate -- normally pretty standard stuff. But over the last week, the "spreads" on such commercial mortgage-backed securities -- the interest rate demanded by the lenders above the rate on no-risk Treasury bonds -- have increased by more than a percentage point.

That's a huge jump. It puts the deal's underwriters, J.P. Morgan and Lehman Brothers, in a bind, because they had provided Carlyle with a firm rate-cap guarantee. But they shouldn't expect much sympathy from Carlyle. During a recent visit to The Washington Post, Carlyle's top executives said any losses the bankers now face would be more than covered by the enormous fees they earned during the good times.