CNBC "Kudlow & Company" Interview with Rep. Charles Rangel (D-NY) and Rep. Jim McCrery (R-LA) Subject: AMT Relief

Interview

CNBC "KUDLOW & COMPANY" INTERVIEW WITH REP. CHARLES RANGEL (D-NY) AND REP. JIM MCCRERY (R-LA) INTERVIEWER: LARRY KUDLOW
SUBJECT: AMT RELIEF

MR. KUDLOW: All right. We make it as simple as we can. The last thing this economy needs right now amidst a credit crunch is a tax hike, and that includes investment taxes, business, income, you name it. So how is Congress going to wind up dealing with the dreaded AMT problem? Joining me, a CNBC exclusive, Representative Charlie Rangel, Democrat from New York, chairman of the powerful House Ways and Means Committee, and we have the ranking Republican member Representative Jim McCrery from Louisiana.

Gentlemen, thank you very much. It's a very cozy scene.

And Mr. Chairman, what is your latest thinking on the dreaded AMT? Where are we going, sir?

REP. RANGEL: Well, there's no question that Jim and I are completely in accord that the dreaded AMT has to be eliminated, not patched up. But you raised the biggest question in how do you pay for it. One thing is certain that both of us agree that whatever method we use, it has to be revenue neutral, so you can get this idea of a tax hike as it relates to general revenues out of your mind. The way that we think we should approach it, and we're having hearings as we spend time with you now, is to take a look at the entire tax code, leave no stone unturned to try to close up the loopholes wherever we can and to try to raise the funds through adjustment of the rates. There's an estimate that with some of the plans that Democrats have put forth in removing the AMT entirely, providing for a larger deduction, providing for child tax credits and expanding the earned income tax credit and making the tax system more simple by eliminating a lot of the loopholes or incentives, that we would be able to extend the benefits to 90 million people and provide relief for 23 million who are caught up in the alternative minimum tax.

MR. KUDLOW: Well, Mr. McCrery, let me bring you in. It's a pleasure to see you, sir. There are a lot of ways to do this. Chairman Rangel is suggesting some base broadeners and loophole closures. I'm all for that. Heck, I want to get rid of the state and local deduction, maybe pinch the mortgage deduction some more, things of that nature. But failing that, Mr. McCrery, there were ugly rumors before the break about, what, a 4 percent surtax on upper incomes or, worse, raising the top income tax rate, not just to 40 percent where Clinton had it but maybe as high as about 45 percent. Can you shed any light on these options, sir?

REP. MCCRERY: Fortunately, I cannot shed any light on those options, because I didn't develop any of those options. That was the majority party, Chairman Rangel and the Democrats in the House. And basically, if you take the revenue lost from repealing the AMT, which is about $850 billion over 10 years, and if one were to replace that revenue solely by increasing the top marginal rate, you'd have to go up to, I believe, higher than 45 percent. You'd have to go up to maybe 48 percent as a top marginal rate. So that gives you some idea of the size of what we're talking about.

What I've suggested to the chairman is that this thing is so big we can't just repeal it and piecemeal it back together with marginal rate increases. We need to talk about overarching tax reform in this country. This is one of the things that I believe is leading us to that discussion, and I would welcome that discussion. I think the tax code is a mess. We need to reform it, and this gives us a good opportunity to do that.

MR. KUDLOW: All right.

REP. RANGEL: Let me agree with Jim. First of all, you two can create all of these horror stories all you want. They're not even on draft paper, so all of this increase that you talk about he's excluded from it -- heck, I'm excluded from this kind of talk, too. The truth of the matter is it's not the alternative minimum tax that's wrong. It's the tax system that is wrong if it doesn't reach the purpose that it wants. And so therefore, of course we have to reform. The problem that we have is a reform to one is oversimplification to the other. And what method of taxation are you talking about?

And while we are talking, I think, politically speaking, we're close together on our goals, we're far apart in how to achieve them. But for God's sake, Larry, everybody's listening to you all over the world, and now you're trying to make it appear as though the Congress or the Democrats are doing this. We have no clue as to how this is going to end up, except that we're having hearings all day long and will continue to meet with people until we believe that we got a tax code that's more simple, that's equitable, that's fair and encourages economic growth.

MR. KUDLOW: Well, listen, I want to believe -- I'm not making this stuff up. My imagination is not all that vivid at this late date in my life. You are a great American. You are a great New Yorker. You are a great Marine. You wrote a great book, Charlie. But a lot of us are worried. I mean, I was in with President Bush a few weeks ago with a small group. We were talking about this subject. You know the president does not want any income tax hikes. He does not want any capital gains or dividends tax hikes. And it's also worth putting on the table with regard to investment income and hedge funds and private equity -- I'm sure you saw this, Mr. Chairman -- there's a new coalition out there, Access to Capital Coalition -- black, minorities, women, Magic Johnson, my pal Robert Johnson who founded BET, Magic Johnson the all-star basketball player -- they don't want to raise taxes on hedge funds and private equity, because they need the capital. So how can we fit all these pieces into one neat little revenue-neutral jar? That's my question, sir.

REP. RANGEL: I don't know. I would like to have a minority set aside for rip-offs as to what exist in the code that don't close it until we get our share. The truth of the matter is there is no way that we've targeted the hedge fund managers or that we're going after public or private equity firms. We're going after the code and looking at it. If there are people who can say that doing the same job and managing hedge funds or in managing equity funds that one group is doing it and they should be able to get capital gains tax treatment, another group does it and they pay ordinary tax, if this makes sense, it will come out in the hearings. Quite frankly, it doesn't make sense to me. But we're not targeting anybody nor are we excluding anybody. We're not excluding charitable organizations, local and state, mortgage interest. We just want to take a fair look at it and see what we can do politically that makes the tax code more simple and more fair.

MR. KUDLOW: All right. Well, we're going to try to get Mr. Earvin Johnson to come on the program. We're going to try to get my pal Bob Johnson -- I went to grad school with him -- in here. They're saying that those people deserve a break for investment purposes. But we're all looking to you for leadership. You guys are like the most important guys in town.

END.

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