April 10, 2007


Fix the AMT (But Not Yet): The looming Alternative Minimum Tax catastrophe, and why the Democrats shouldn't try to prevent it. (Daniel Gross, April 10, 2007, Slate)

[T]o fix the AMT satisfactorily, Pear writes, Democrats would have to either jack up tax rates on high earners or eliminate popular deductions, which would effectively raise taxes on many taxpayers.

In either case, Republicans would have a carnival, attacking the Democrats as tax-lovers. The Republicans' main argument against Democrats is that they'll raise taxes by letting the Bush tax cuts expire in 2010. Fix the AMT now and it will simply allow Republicans to argue that the Democrats are raising taxes in 2007 and 2008, too. What's more, fixing the AMT permanently provides all the drawbacks of responsible tax cutting with none of the benefits. The point of fixing the AMT is to shield millions of Americans from future tax increases. But Americans, who are instant-gratification addicts, would sooner vote for somebody who cuts taxes by $1,000 today than for someone who spares them a tax hike of $2,000 tomorrow. The last time Democrats with a narrow majority in Congress raised taxes on high earners to improve the nation's fiscal picture was 1993. The following year, they were unceremoniously booted into the wilderness, whence they wandered for a dozen years.

The alternative is to let the long-dreaded AMT explosion take place next year. Sit back and wait for President Bush to propose a solution. (He won't.) Or propose a permanent fix but make it conditional on proposals that would be anathema to Bush—like restoring the estate tax.

A year from now, 20 million additional people, including me and probably most of my colleagues, co-workers, co-commuters, and neighbors, will find themselves suddenly hit by the AMT.

Letting a crisis develop would be irresponsible. But it would help clarify issues and force action. Policy wonks on the left, center, and right all know that simply patching the AMT year after year forestalls a larger debate about tax rates, deductions, and entitlements.

Would Democrats suffer political backlash? Probably not. The AMT's victims will be concentrated in states in which Republicans are not likely to be all that competitive in 2008.

So he's not only advocating that they behave irresponsibly but that they screw over their own constuencies. And what would be the most likely result? Even Blue Staters would be demanding tax cuts. In the first instance Democrats demonstrate themselves incapable of governing, in the secoind they demonstrate why it is undesirable to have a party of their ideology try to. Yet we're the Stupid Party....

Posted by Orrin Judd at April 10, 2007 9:53 AM

But, but, but, they're DEMS - they WANT to pay higher taxes!

Posted by: Sandy P at April 10, 2007 10:12 AM

The Dems are in for a very difficult next couple of years. Their insane leftist base is fully in charge, but they won the 2006 elections purely by campaigning negatively (i.e., they couldn't say what they would do once they won, because it would have ended their chances of winning). Now they're committed to eliminating every Bush tax cut purely because they're associated with Bush. Incredibly, that includes the $1000 child tax credit. Now, Nancy Pelosi's district (fewest children of any district) and the insane (childless) left doesn't see any impact from that, but do they really think Heath Shuler's going to be able to survive if they make moves like that? If only the Republicans weren't the Stupid Party...

Posted by: b at April 10, 2007 10:42 AM

I know this is only a rough first-order estimate, but it seems to me that the kinds of behaviors that the regular income tax incentivizes but the AMT doesn't (and that ordinarily set up the biggest itemized deductions on the tax returns of the "evil rich," i.e., people who work for a living and earn between $75K and $300K) are pretty decent predictors of voting Republican. The married man who supports a wife and several kids, lives in a house he owns with a mortgage, pays real estate and school taxes (and maybe private school tuition too), saves for retirement, and tithes to his church gets royally shafted by the AMT; he loses deductions for dependents, mortgage interest, state and local taxes, IRA/401(k) and charitable contributions, and his marginal rate probably goes up to boot. In comparison, his swingin' bachelor co-worker with no kids who rents an apartment, doesn't save and doesn't go to church (or otherwise donate much to charity) doesn't have nearly as much to lose. All other factors being equal, the AMT is a much bigger problem for conservative voters than liberal ones. So why should Nancy Pelosi care if the evil fundamentalist breeders have to pay substantially more?

Posted by: Random Lawyer at April 10, 2007 11:17 AM

As a single man who's only made at most $36500/year, I really can't see what the big deal is about the AMT. Seeing the debate on this, it sounds like it's all those college professors who thought that their wages would never reach that AMT threshold that are screaming the most about it.

Posted by: Brad S at April 10, 2007 11:46 AM