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Taxing Time for Democrats? (Michael Barone, December 15, 2007, Townhall)

The paradox is that the same Democrats who want to increase top-bracket income and capital-gains tax rates are desperately eager to spare relatively high earners from the AMT -- so desperate that Senate Democrats agreed to waive the "paygo" rule they reinstated when they took control.

Paygo requires that a tax cut be offset by a tax increase or a spending cut of corresponding dollar amounts. But when the Senate early this month passed its $50 billion AMT "patch" exempting 230 million taxpayers from the AMT for one year, it waived the paygo rule.

House Democrats are simmering, but they will probably have to go along. There's a process argument for waiving paygo, which is that future AMT revenues are fictitious because no Congress will allow the tax to go into effect. But it's nonetheless embarrassing for Democrats to renounce a rule they adopted as a guarantee of their fiscal responsibility.

The reason Democrats risked this embarrassment is that the AMT tends to fall on voters in places with high state and local government spending and taxes -- Democratic places like Massachusetts, Connecticut, New York, New Jersey, Maryland and California.

Taxpayers hit by the AMT can't deduct state and local taxes from their federal income tax bill. Sooner or later, that puts downward political pressure on state and local spending. And that, in turn, threatens the vested interest of a key Democratic constituency, the public employee unions.

The ideal would be to let it creep until it covers 100% of taxpayers, a kind of back-door flat tax.

Posted by Orrin Judd at December 15, 2007 9:40 AM