September 10, 2007

DRIVING A STAKE THROUGH FRANKENSTEIN'S HEART:

Confronting His Monster (GROVER NORQUIST, September 10, 2007, NY Sun)

In 1999, Mr. Rangel voted against repealing the AMT beast and slaying it forever. Had that bill become law, the AMT would have been permanently repealed on December 31, 2007 — this year. Instead, Mr. Rangel is forced to deal with a monster of his own creation. The monster has gotten hungry. According to official estimates, failure to restrain the AMT will lead to 27 million taxpayers having to pay this tax. A tax that would be dead, gone and buried this year if not for President Clinton and Mr. Rangel.

The irony is almost poetic. The typical AMT taxpayer lives in a state like Mr. Rangel's New York, Nancy Pelosi's California, and Robert Menendez's New Jersey. They have a jumbo mortgage, sky-high state income taxes, a couple of kids, and a six-figure income. For the most part, these are the inner-suburb-and-urbanite, center-left voters who supported the AMT authors in the first place. It is unlikely that there is a thousand dollar contributor who is not paying the AMT.

Now there is considerable pressure on Mr. Rangel to help these constituents. So, he has been supporting a plan to eliminate the AMT — and raise taxes on everyone else to pay for it. Under the Rangel plan, small businesses and wealthy individuals would pay a "surtax," everyone would pay a higher capital gains rate, and everyone's pension would be taxed in the form of treating "carried interest" capital gains from private equity funds, which defined benefit pension plans increasingly use, as ordinary income. [...]

There is a better way. Senator Grassley, the ranking member on the tax-writing Senate Finance Committee, has a good way of describing the AMT: It's a mistake. It is not doing what it was intended to do. Instead, thanks to proper care and feeding by zookeepers, the AMT beast is threatening to ensnare tens of millions of American families.

To paraphrase Mr. Grassley, "you don't ‘fix' a mistake, or ‘patch' a mistake — you correct the mistake." In this case, that means a clean kill of the AMT. Revenue losses shouldn't be counted, since the AMT mistake is yielding a windfall of income never intended by policymakers.

Posted by Orrin Judd at September 10, 2007 8:51 AM
Comments

I wonder, though; if the rates can be finagled properly, the AMT could be a once-in-a-generation chance to sneak a flat tax in by the back door.

Posted by: Mike Earl at September 10, 2007 2:08 PM

Revenue losses shouldn't be counted,...then how the heck can they finance their earmarks to pay their cronies and their families?

Posted by: ic at September 10, 2007 4:13 PM

The telephone tax to pay for the Spanish-American War was only repealed recently. I suspect the AMT will be repealed when it ceases to collect sufficient revenue. Mr. Rangel's great-great-grandchildren will probably have grandchildren before that day.

Posted by: Mikey [TypeKey Profile Page] at September 10, 2007 5:06 PM
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