Senior Fellow Kevin  A. Hassett

Last week, just in time for the Halloween season, House Ways and Means Committee Chairman Charles Rangel gave American voters a chilling glimpse of what U.S. tax policy will look like if a Democrat wins the White House in 2008.

For those of you wondering what the details of taxing the rich to pay for Democratic spending proposals might look like, Rangel, a close ally of Hillary Clinton, has provided a tour of the abyss. If the "mother of all reforms," as he calls his tax plan, had a name, it would be Mrs. Bates. But, unlike Norman's mother in the Alfred Hitchcock classic Psycho, this lady is very much alive.

In terms of revenue, Rangel's reform would be the biggest tax increase in history. Compared to a baseline where President George W. Bush's tax cuts are extended and the dreaded alternative minimum tax isn't allowed to swallow millions of taxpayers whole, the bill raises taxes by a whopping $3.5 trillion over the next 10 years, according to the office of Representative Jim McCrery of Louisiana, the top Republican on the Ways and Means Committee.

To put that in perspective, that's about $2 trillion more than the 10-year cost of the Bush tax cuts enacted back in 2001.

But the revenue grab isn't the scariest part. That honor belongs to the increase in marginal tax rates, which is almost unfathomable in its scale. Rangel's main objective is to repeal the alternative minimum tax, which was originally designed to capture taxes from wealthy individuals but over the years has taken in more and more middle-income families.

Forty-Eight Percent Tax Rate

To accomplish that, and still collect the AMT revenue, he would enact a surtax on the adjusted gross incomes of wealthy taxpayers. If your family's income is above $200,000, then your surtax is 4 percent. If it's above $500,000, it's 4.6 percent.

But the tax increase on the wealthy doesn't stop there. When the Bush tax cuts expire in 2010, the top marginal rate goes back to 39.6 percent. In addition, Rangel would restore the phase-out of itemized deductions and personal exemptions that was repealed in Bush's 2001 bill.

Adding it all up, and adjusting for the tax rate on Medicare, the Rangel bill would raise the federal marginal tax rate on incomes above $500,000 to close to 48 percent.

To put that tax rate in perspective, after adjusting for state and local income taxes, it would be about 13 percentage points higher than the average of U.S. trading partners in the Organization for Economic Cooperation and Development. And it would give the U.S. the fourth-highest combined top marginal tax rate in the OECD, behind only Denmark, Sweden and France.

Specious Argument

For years, Democrats, led by former Treasury Secretary Robert Rubin, have pedaled the economically ridiculous notion that increasing marginal tax rates would improve the economy. They reason that workers wouldn't adjust their behavior much with the higher rates and that the greater tax revenue would reduce long-term interest rates.

This view has a couple of holes in it. First, ample research by Nobel Prize winner Edward Prescott of Arizona State University and separately by Stephen Davis of the University of Chicago has shown that individuals respond in the expected way to higher tax rates: They work less. That hurts the economy. Second, the link between the higher revenue and interest rates is fairly weak.

Still, Rubin's minions continue to pitch the idea that high marginal rates will deliver prosperity. A sign that you are promoting a falsehood is often that you do so in a manner that has internal logical flaws.

Why Stop There?

One internal inconsistency within this rhetoric has always been that Democrats have only publicly advocated the repeal of the Bush tax cuts. But if what Rubin says is true, then you should be able to really stimulate the economy with an even bigger tax increase.

Why stop at a marginal tax rate of 39.6 percent if tax increases are so wonderful? Why not go back to the 70 percent rate of the 1970s, or even the 91 percent rate of the 1950s?

Rangel's bill reveals that this is exactly what Democrats have in mind for us. It uses smoke and mirrors to get the rate back up close to 50 percent.

There is no question that this tax hike has no chance of taking place while Bush is in office. He would veto the bill, and so would any Republican.

But if Clinton is elected, you can bet that something like it will become law. The Clinton campaign signaled as much last week when it was asked to comment on the plan: "Senator Clinton and Representative Rangel share the broad goal of progressive tax reform," said Phil Singer, a campaign spokesman.

So while most scares will come and go this Halloween season, the Rangel tax proposal will be around, at least until November of 2008.

Kevin A. Hassett is a senior fellow and director of economic policy studies at AEI.