I’m on Rangel’s Side…Sort Of

Poor Charlie Rangel. The chairman of the House Ways & Means Committee got some bad press in July when the sweetheart deal giving him four rent-controlled apartments became public knowledge. Now he’s getting another dose of bad publicity because he somehow forgot to report $75,000 on rental income for his luxury villa at the Punta Cana resort in the Dominican Republic. The New York Times reports:

A lawyer for Mr. Rangel, Lanny Davis, …said the congressman did not realize he had to declare the money as income, and was unaware of the semiannual payments from the resort because his wife, Alma, handled the family finances and conferred with their accountant, John Viardi, on tax matters. …New York State law classifies filing a false city or state tax return a felony punishable by up to four years in prison, but Kathleen M. Pakenham, a tax lawyer at the law firm of White & Case, said criminal prosecutions are rare and in most cases, the taxpayer is simply fined 20 percent of the back taxes owed.

I’m sure plenty of commentators will be dragging out a petards (whatever that is) and hoisting Rangel on it, but I want to express some sympathy. In a good tax system, governments only tax income earned inside national borders – the common-sense practice of “territorial” taxation. As such, the only government that should be concerned about Rangel’s Domincan Republic income is the Dominican Republic. The Ways & Means chairman is only in trouble with American tax authorities because the United States has a very imperialistic system of “worldwide” taxation.

But before you feel sorry for Mr. Rangel and start organizing a petition drive on his behalf, it’s worth noting that the chairman has not tried to fix this policy. Indeed, he wants the make the IRS bigger and the tax code more onerous. Let’s hope, though, that this experience will push him in the right direction.