Press Conference with Rep. Charles B. Rangel (D-NY) on Tax Reform Legislation

Interview

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REP. RANGEL: (In progress) -- people operating equity funds, when they're managing these funds, the question is, not how they are compensated, but how is the compensation treated by the Internal Revenue Service.

If you are providing the same managerial skills, but you call -- one of them indicates that you're getting a carried interest -- that is, it's perceived that you are partner without having made a contribution in capital, that your return, your fee should be considered as capital gains and be taxed at the 15 percent rate -- that is an absolute stretch that our hearings proved was unwarranted.

And if other people were doing the same type of thing, and were being paid -- ordinary income tax being paid, and it was treated as ordinary income, and that rate is 35 percent, then we had plenty of time to allow people to show us why one group of people doing the same managerial job should be taxed at such an extraordinarily lower rate.

We have tried desperately to weigh both sides, and we've come up with the fact that it is unfair and an unwarranted benefit.

Also we believe that the question of deferred income is a question of how people have been able to receive large amounts of compensation, but by removing the site to being offshore, they've been able to avoid paying taxes on remunerations that would exist if in fact the tax haven did not exist, and it was working here.

Another part of the bill deals with the corporate structure. We have had a bipartisan -- strike that -- the full committee has met with Secretary Paulson to hear his views about the corporate tax rate, and he was persuasive in allowing us to believe that our corporate rates are much higher than our competitors, and he thought that was an impediment for effective competition in international trade, and we agreed with him.

But we also agreed that even though the 35 percent tax rate was high, many corporations receive unwarranted tax breaks, tax credits, or what we call when we're on the elimination side loopholes, and they were paying absolutely no taxes at all.

So on one hand there's a high tax rate, and the other hand, there's a low revenue because of the loopholes. So we figured if we dramatically reduced the 35 percent rate to 30.5 and closed some of the loopholes that caused a -- the disparity in terms of corporate liability that that would make sense, so we moved off in that point.

Now most of you know that the House has had a lot on our calendar, and in addition to that there are some concerns about how the Senate would be receptive to our bill. So that instead of taking care of those provisions that expire this year, we put in a third part of the bill, which we can, which we will pull out, to protect those tax benefits that are in the bill which expire at the end of 2007.

And to the extent that they expire at a later date, we would take a look at them at a later date. But R&D and the myriad of other tax benefits that expire will be taken care of in the extended bills.

And to the extent that we can negotiate with the Senate as to how we're going to pay for the extenders, then that would be able to determine how perhaps we can move on an agreement.

There is a problem, and that is as it relates to the alternative minimum tax. There was a time when we had thought that that would just be included in the bill without extenders. I hear that the Senate may be considering not paying for the alternative minimum tax, or just saying that they didn't do it, and they don't have to pay for it, or language and theories that we don't know in the House.

If indeed they make the decision not to pay for it, then we will pull the AMT out of the extenders, pay for the extenders, assuming that we believe they should be paid for, and then we actually will have a very strong difference of opinion in terms of the PAYGO rules in the House of Representatives and the fact that we truly believe, as Greenspan believed, that if you have been enjoying tax cuts or tax benefits, they should be paid for, and we shouldn't borrow them.

I don't see where this would be any special reasons or emergency as to why we should dismiss the PAYGO rules. I have not talked in detail with the other side, but that is something that should be making some news early, because we have to move early.

To the extent that the IRS is concerned about whether we actually patch it, I think the leadership on both sides have given the Treasury and IRS the confidence that we will fix it, and the question of how we fix it is presently a difference of opinion between the House and the Senate.

I think I've covered most of the broad things. And now I'm ready to take questions on the specifics.

Q I know there's going to be questions about the nitty- gritty. But talk to me from a personal standpoint about this, this is a legacy bill for you. And what means is, as chairman of the Ways and Means Committee, major tax reform, probably the biggest tax reform since 1986. Talk about that in personal terms for you as chairman.

REP. RANGEL: I've always felt that as a kid, that if this great country had given me an opportunity to earn a decent or even a more decent high salary, that I had an obligation to pay taxes, to keep the government going, and to provide services for those people who are less fortunate.

And so therefore the distribution of tax liability has been a personal thing with me. As the chairman I have to make certain that we encourage economic growth; that we do not do anything that would cause people not be willing to invest in this country; and indeed, that the tax rates should encourage investment, because that in the short and long run is what is going to create the jobs.

I think personally that the tax code should be simplified. When you find working people paying more for the preparation of their tax returns than they're paying the federal government, something is dramatically wrong with that.

But I guess the bottom line in all of this, personally and politically, is the general feeling, do people think that system is fair. And when you find people making millions, hundreds of millions of dollars, paying taxes at a lower rate than the secretaries and the janitors and the common laborers, there is a sense among those who pay the taxes that I don't mind paying the tax, but I don't think the liability is distributed equally.

The tax system in the United States of America is a volunteer system. Those of you who've had IRS agents running behind you may not think it, but true, these agents only serve as an extension, as a deterrent, for people to do what? To do the right thing. And if you treat them unfairly, and they truly believe it, there is an encouragement for them to avoid the system. So as a practical point of view, I would want people to be able to say, I wish those rascals in Washington would not tax me at all. As Senator Long would say, don't tax me, don't tax me, just tax that guy behind the tree. (Scattered laughter.

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But if they really realize that we did the best that we could in distributing the tax liability to make this country as great as she can be, and it's considered fair, and recognizing that there's going to be winners and losers, but the decision was not made by lobbyists, it was not made by people who have an undue influence on government, but was made open and not in a back room, I would hope that even those who disagree on the policy would agree that the way we reached it was an open, honest way to achieve what we have to do.

Q Mr. Chairman, where do you go from here? You're likely to face considerable opposition from Republicans if the scheduled press conference is any indication, plus you're running up into an election year, where this is likely to be a big issue. How do you manage that?

REP. RANGEL: Well, one of the reasons why I did not wait, and there's been some false reports that -- that this is merely a blueprint of what I hope is going to happen in 2008 or 2009, and I said, I'm willing to work with any president in the next election, no matter who she is, but I am not prepared -- (laughter) -- I'm not prepared to be legislating for the next president. No.

If I had thought there was landing room legislatively for this bill this year, I would've really pushed having it as initially I did. But when I saw what was happening to our legislative calendar, recognizing how important this bill is, and not wanting Democrats or Republicans to be rushing to just vote up or down on this bill, I reached the conclusion that we should have time for this bill to be aired out by Republicans and by Democrats, the corporate side and the individual side. And that should allow us by springtime to be able to say that the consensus that we had reached on this bill may have to be tweaked, may not have to be; there may be improvements, but at least we'd be ready to move forward and have a bill.

I wish that the areas of bipartisanship that we had enjoyed could move over to this side. And to the extent that Republicans cannot really support the bill, I've offered them the opportunity on this bill as on any bill in the Ways and Means Committee, to work hard, to put in amendments, and that the passage or failure of the amendment would not be conditioned as to whether in the final analysis they're able to vote for the bill.

Classic example is the -- is the trade adjustment bill where we had full participation by the Republicans. We only picked up three or four votes, but to me we had full participation by the members in improving a bill that some did not want but did want to perfect. I would think in the area of taxes that we should have the same thing, because it's not likely in the next couple of years that the Democratic majority, assuming that we enjoy it past this time, is going to move toward a sales tax, a consumption tax or a flat tax. And this is the general area in which the Republicans are thinking in resolving Social Security, Medicare and taxes generally.

Q Mr. Chairman, is your --

REP. RANGEL: You've had so many questions this week, I'm totally amazed you would have even one left.

Q I -- hats off to your generosity in giving me one more question.

REP. RANGEL: No, no, no, I was only joking.

Q On the -- what you're doing on the AMT and the surtax, is the principle behind it that taxpayers would not be paying more under the surtax than they would have under the AMT in the current law?

REP. RANGEL: First of all, the taxpayer has not been hit by AMT. This has been over their head. They've been scared to death that the Congress would fail to remove this thing permanently. So the theory here is that we are taking that away on a permanent basis, and that leaves us to look at the tax brackets above $200,000 to pay for the benefits that we're giving to the middle income people.

So to the extent that you take a look at what would their tax liability have been with the AMT, no one will be paying a higher tax probably until you get to 400 (thousand dollars), $500,000, and there you would find a surtax coming in to assist us in providing the support for the tax cuts and earned income tax credit, child tax credit and standard deduction.

Q Okay, but if I could follow up on that sir, what you're saying is, you want the Treasury to set a level at which 90 percent of taxpayers would have been paying the AMT.

REP. RANGEL: Yeah.

Q What about the 10 percent that are above that level that wouldn't be paying the AMT, and now are facing a surtax. Don't they see a tax increase?

REP. RANGEL: Well, we are adjusting the rates. And I guess it could -- we call it enhancing the revenue in order to support the bill.

Q Will corporations be paying a higher tax rate, even though you've cut the rate itself, because you're closing loopholes? Won't that mean they're --

REP. RANGEL: Some will and some won't.

Q So are you expecting them to support this?

REP. RANGEL: All of those that don't enjoy the loopholes or preferential tax benefits, and -- would support the reduction in the corporate tax.

Q Mr. Chairman, can you talk about the next two weeks? I mean you've got this AMT tax bill that you are going to include these tax increases for Wall Street --

REP. RANGEL: What do you want me to talk about?

Q How do you see this playing out over the next couple of weeks? You've literally pitted middle income Americans against --

REP. RANGEL: There must be a nicer way to say it. How about equity and fairness?

Q You know, I mean --

REP. RANGEL: You know, if you're getting a tremendous tax cut like the gentleman asked, you know, if you're getting tax benefits, and you remove those benefits, then one might say you're pitting one against the other, and you're increasing taxes.

This is not my idea. This is Paulson's idea as it relates to the corporate people, where he has identified revenue raises and loopholes and not tax increases. And so of course if you're the beneficiary. I -- I have not received since I've been in the Congress anybody to call and thank me for the Reagan tax cuts -- I mean the Bush tax cuts. Not a call, not a card, nada, nothing. And so who am I pitting against whom? But when people hear that they're doing so well, struggling to make the mortgage, especially now, struggling to keep their kids in school, the ever increasing health care packages, whom am I pitting against whom?

As a matter of fact, I would hope that those who have fortunately been enjoying a lower tax rate as a result of their high income, might be able to say what some friends have said, as long as it's fair. I would hope that would happen.

And that's the reason we have press conferences. That's why I introduced the bill. And that's why people are warning me, you know, to get a food taster the next couple of weeks -- (laughter) -- because we don't know which way this is going. But we do -- we've tried hard to make certain that it is fair and equitable, and we've raise the money to pay for it.

Q Mr. McCrery has already called this the largest tax increase in the nation's history, in part because it pays for the AMT tax, and it's unfair. But it sounds like he's also criticizing the bill for not extending the 2001 and 2003 tax cuts.

Is this bill the largest tax increase in the nation's history?

REP. RANGEL: Of course not. I'm only pausing because I don't know what words to use that are more effective than what we call revenue neutral. I mean sometimes you're in Washington for so long that people say, what do you mean by revenue neutral. It means that we are not raising taxes within the tax structure. We are restructuring the rates of taxes, so that at the end of the day, 90 million taxpayers would walk away notwithstanding what critics have said, is that I may not understand the system, but I got a decrease in taxes.

So how one can say this is the largest tax increase I don't know. We're not borrowing the money. We're not going to Japan. We're not going to China. We're going within the system. And where it's abundantly clear that some people have been able to manipulate the system to get tax advantages in the code, we got tax advantages in the code that people forgot why they put them in there.

And so we took a look to see whether or not there was any economic benefit to the tax incentives that's there.

If it only benefits a handful of people, or a handful of corporations, and the overwhelming majority of the people are not enjoying that benefit; if you're the beneficiary, you can run around and say, this is the largest tax increase I've ever had. And I think given an opportunity to respond, one might say, but you haven't paid taxes in a long, long time either.

So you know it's only a question of language. I feel very comfortable with the fact that it wasn't easy to make this revenue neutral, but we did it.

Q (Inaudible)

REP. RANGEL: You know, it's kind of hard to have an elephant -- strike elephant -- to have a gorilla in the living room and say it doesn't exist. We have been looking long before hedge funds and current interest became so popular in the press. We did not want to target them when we knew we were looking for overall tax reform.

And of course the larger the unfair benefit, the more revenue you raise. And so no reporting here would ever be able to say that I was looking at this particular industry to raise money. No one could say, no matter what the press would say, that we needed the money and so we targeted a particular industry.

If we just wanted to cut taxes or reform the system, we would have to find an explanation, which I have yet to hear, if you do the same job, should you enjoy a 15 percent rate of taxes instead of a 35 percent rate merely because how you structure it or what you call yourself.

And I have given everyone an opportunity to express, what makes you so different? If they say, because I invested my money in this, I'm not just a manager, then I can say, well, I didn't mean you. Because to the extent that you invested capital, then it should be treated as capital gains.

But if it's your expert managerial skills, and you just think it's superior than your competitors, it's difficult for tax purposes for me to accept.

Q Mr. Chairman, you call it adjusting the rates.

REP. RANGEL: Yes.

Q (Inaudible) -- we know are calling it the biggest tax hike of all time.

REP. RANGEL: Who?

Q What about -- your counterpart, Mr. McCrery.

REP. RANGEL: That's the same question.

Q But I'm asking you a political question, sir. Are you at all concerned about the political debate that you're essentially going to give Republicans a chance to say, here go the Democrats again, raising your taxes? How are you

REP. RANGEL: I am so --

Q -- that argument.

REP. RANGEL: Give me that legacy question again. (Laughter.) I am so excited of being a part of the team that in a very nonpolitical way to say that we have attempted to restore equity and fairness to the system.

And instead of just talking about Republicans, I am anxious to hear from those people that believe they've been unfairly taxed. I really welcome it, because somewhere along my 77 years, or my 38 years here, or the quarter of a century I've been on the committee, they have not been effective in persuading me that their preferential tax rates should be had at the expense of people who work hard everyday and don't enjoy these tax breaks.

I wish the day would come that we would not need to use the tax code as incentives to provide for people with child care, with low wages, with health benefits. But until we do, and the system is there, if it can be used to have people to get extraordinary incomes offshore, and if it can be used to give certain manufacturers tax benefits for political reasons because of the World Trade Organization; if it could be used to identify a group of people to say, I have declared that you need an incentive to become a billionaire, and we can't make any sense out of it, I would rather than talk about how big the tax increase is going to be, for them to talk specifically as to where is the unfairness.

So I think that you have now allowed me to form my answer to all of these questions, and that is, just don't say it's a dramatic tax increase, if I'm running around saying that 90 million people are going to get a tax cut. And if you believe that, tell me who are the people that are getting this tremendous tax increase? And I can count -- and 90 million people are not included in that number.

Q Mr. Chairman, you think the surtax, 4.6 percent at the top, and then expiration of tax cuts in 2010, that pushes the top rate up to above 44 percent, the highest rate it would be in a decade. Is that too high?

REP. RANGEL: You know, I'm 77, and I feel good. But I don't feel comfortable dealing with 2010 right now. 2010 comes when 2010 comes. Let me see, is there anyone that hasn't asked a question? I can't get rid of you, so --

Q You've expressed optimism that there would be a way to work out the -- (inaudible) -- before the end of the year. What signs do you have that the Senate would be amenable to that kind of a formula with the short amount of time left?

REP. RANGEL: Twenty three million people is going to drive us to provide relief; that's for darn sure.

Q Practically speaking? In the Senate.

REP. RANGEL: I don't know about the other body. All I'm knowing is that if this is not done, the weight is going to fall so heavily on the persons or people that are considered to have been responsible for not providing this relief, and I choose my words very carefully because I haven't the slightest idea how this is going to play out. I know the House position, but I don't think the Senate has publicly understood the depth of our commitment to the House position.

And they are not used to the Constitutional right of ways and means, they really are not.

Q Mr. Chairman, are you confident that the House will pass in the next few weeks your bill including the AMT changes --

REP. RANGEL: The extenders. The extenders

Q -- or whatever it is that --

REP. RANGEL: No, no, not whatever it is. I've got a big bill, and we're not going to vote on that this year.

Q You're confident the House will go along with --

REP. RANGEL: With the extenders, no question about it. As a matter of fact, I'm going to work with them this afternoon to confirm my confidence.

Q Mr. Chairman, have you consulted any of the top Democratic candidates right now -- and particularly "she" who you mentioned earlier -- about this type of bill and how they might go along with it or not?

REP. RANGEL: No, but I have said publicly with all of our candidates that while we really respect what they are proposing, that as it relates to health care, trade and taxes, that it will be the legislators that ultimately are going to decide.

So to the extent that their ideas coincide with the majority, it'll make it a lot easier for us to work together.

(Off mike consultation.)

Q You said you were paying for the one-year fix for the AMC. I'm not quite clear how you are paying for it.

REP. RANGEL: Well, we will be able to take some of the provisions that we have in the major bill that will not go into effect, which of course will include current interest, and pay for it with that, and also with the deferred income plans that we have. And we can pay for it easily, because we would not have to pay directly for the big bill until that passes.

Q So those two. Any others?

REP. RANGEL: I'm anxious to talk with the senators. But I can't talk with them if they say they're not paying for it. So you're pulling me out on some very thin ice because I don't want to project anything that they say, heck no, I've got a better idea. But right now is, heck no, I don't have any ideas. And so that's not going to work.

Thank you.

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