TPC Fact Sheet:
The Rangel Tax Bill (H.R. 3970, The Tax Reduction and Reform Act of 2007)

Ways and Means Committee Chairman Charles Rangel has introduced tax reform legislation that would repeal the individual alternative minimum tax (AMT), increase the standard deduction, expand the earned income tax credit (EITC) for childless individuals, and increase the availability of the refundable child tax credit to low-income workers. The cost of these cuts would be largely offset by three provisions: a surtax on high-income taxpayers, partial restoration of the phaseout of itemized deductions and personal exemptions, and tighter limits on miscellaneous itemized deductions.
See the TPC analysis of H.R.3970.

Who will benefit from the major individual income tax changes?
Households with incomes below $500,000 would, on average, see their taxes fall and those with higher incomes would face higher tax bills (see graph). The largest tax cuts as a share of income go to low-income households (incomes under $20,000), who benefit from the increased refundable tax credits, and those with incomes between $75,000 and $500,000, who gain more from repeal of the AMT than they lose because of the surtax and other offsets.

Click chart for underlying data

Which provisions affect lower-income families?

• The increased standard deduction helps families that do not itemize their deductions.
• The larger earned income tax credit for childless individuals assists low-income single workers.
• The lower earnings level at which the child tax credit becomes refundable extends the credit to additional families with low earnings.

Which provisions affect higher-income families?

• AMT repeal would reduce income tax bills for many higher-income taxpayers.
• The 4 percent surtax on adjusted gross income above $200,000 for couples and $150,000 for singles would increase taxes for all taxpayers in that income range.
• Partial restoration of the limitations on itemized deductions and personal exemptions and a further limit on deductions for miscellaneous expenses would increase taxes for high income households.

How would the tax changes be distributed?

• About 86 million households (57 percent of the total) would get a tax cut in 2008.
• About 3.6 million households (2.4 percent) would pay higher taxes.
• Almost no one earning less than $100,000 would receive a tax increase.
• Almost 80 percent of households earning more than $500,000 would face higher taxes.

Source: T07-0300.

How would the bill affect marginal tax rates?

• Nearly 22 percent of households would face a lower marginal tax rate on their wages. (T07-0313)
• About 7 percent of households would face a higher marginal tax rate on their wages. (T07-0313)
• Among taxpayers with positive capital gains, 15 percent would face a higher marginal rate and 16 percent would face a lower marginal rate. (T07-0314)
• More than half of taxpayers with incomes between $100,000 and $500,000 would experience a decrease in the marginal tax rate on their wages. More than 80 percent of taxpayers with incomes above $500,000 would face an increase. (T07-0313)

Further Reading:

• Greg Leiserson and Jeffrey Rohaly. 2007. Distributional Effects of the Major Individual Income Tax Provisions of H.R. 3970: The Tax Reduction and Reform Act of 2007. Washington, DC: The Urban Institute. Available at http://www.taxpolicycenter.org/publications/url.cfm?ID=411564.
• Tax Policy Center. 2007. HR 3970: The Tax Reduction and Reform Act of 2007. Urban-Brookings Tax Policy Center microsimulation model estimates. Available at http://www.taxpolicycenter.org/numbers/
  displayatab.cfm?template=simulation&SimID=246.