House Democrats Will Seek Massive $540 Billion Tax Increase—Announcement Came Late Friday Afternoon

By Terence P. Jeffrey | July 11, 2009 | 12:19 PM EDT

House Ways and Means Chairman Charles B. Rangel (D.-N.Y.) (Congressional photo)

( - Despite a still-lagging U.S. economy and rising unemployment rate, House Democrats announced late yesterday that they will seek a massive increase in federal income taxes to help pay for the national health-care reform proposal that President Obama is urging Congress to enact this summer.

House Ways and Means Chairman Charles Rangel (D.-N.Y.)revealed late Friday afternoon that House Democrats will seek to increase income taxes by $540 billion.
The move, which had been discussed earlier in the week by House Democrats, broke in an Associated Press story that was published at 4:14 PM Eastern Daylight time on Friday afternoon (or 8:14 PM Greenwich Mean Time).
“Ways and Means Committee Chairman Charles Rangel of New York said the tax would raise $540 billion over 10 years” the initial AP story reported.
Releasing news late on a Friday afternoon is a traditional public relations tactic used by politicians seeking to limit the news coverage of an item they nonetheless need to release.
Subsequent AP stories and a report in the Washington Post cited Democratic sources as saying that the massive new tax increase would come in the form of a “surtax” on people filing taxes in the upper brackets of the income tax code.
The upper tax brackets are already set to increase after next year when the income-tax cuts signed into law by President Bush in 2001 expire.  President Obama and the Obama Treasury Department have indicated they intend to let those tax cuts expire for the upper two income brackets—meaning any individual or small business earning more than $200,000.
 The “surtax” the House Democrats are planning now would further increase the income tax rate for people and small businesses paying taxes in the top brackets.
“Rangel didn't describe details, but one official said the surtax would apply to individuals with adjusted gross incomes over $280,000 a year, and couples over $350,000,” the AP reported. “A senior House aide said the surtax would be 1 percent for the first group of high earners, those households making $350,000 or more. The levels for the other two groups, those above $500,000 and $1 million in annual income are still being determined, said the aide.”
On Saturday morning, the Washington Post published a report on its Web site about the planned tax increase, under the headline—“Democrats Agree on Tax Hike to Fund Health Care.”
“Beginning in 2011, the plan would target all income over $350,000 a year for families and $280,000 a year for individuals, Democratic sources said,” the Post reported. “The surtax would start at 1 percent, rise to around 1.5 percent for families earning more than $500,000, then step up again, to around 3 percent, for families earning more than $1 million, Democrats said.”

The Post did note that this tax increase would come on top of tax increases that the Democrats were already planning by allowing the Bush tax cuts to expire.
“The top federal tax rate currently stands at 35 percent, but Democrats have vowed to raise it to 39.6 percent next year, when cuts enacted during the Bush administration expire,” reported the Post. “Combined with other federal tax adjustments, the surtax could leave most taxpayers with annual incomes more than $350,000 facing top federal rates of at least 45 percent, said Robert Carroll, a senior fellow at the nonprofit Tax Foundation.”
The New York Times also posted a piece on the proposed tax increase on its Web site.
“An aide to the House speaker, Representative Nancy Pelosi of California, said she and other leaders were supportive of the idea, which they concluded would be their main way to pay for Mr. Obama’s top policy priority: expanding health insurance coverage to virtually all Americans and curtailing the steep rise in the cost of medical care while improving patient outcomes,” reported the Times.
The Times also observed that the planned tax hike was a sign of the sort of “mandate” Democrats believed they won in last November’s election.
“With the economy still hobbled and Republicans already sharpening their tax-and-spend attack line, the proposal is perhaps the clearest expression yet of the mandate that Democrats believe they won last November, when voters expanded Democratic majorities in Congress and sent Barack Obama to the White House,” said the Times.
In 2001, President Bush signed tax reform legislation that cut income tax rates across the board. People who were then paying a 15% federal income tax rate had their rate cut to 10%. The higher income tax rates of 39.6%, 36%, 31%, and 28% were cut to 35%, 33%, 28% and 25%.
President Obama’s Treasury Department has indicated that the administration will seek to increase the current 33% rate to 36% and the current 35% rate to 39.6%.
Under Obama’s tax-increase plan, individuals making $200,000 or more would be subject to the new 36% rate.  The income “surtax” House Democrats now plan would come on top of Obama’s tax increases.