Liberals for Tax Cuts!
WSJ.com
December 5, 2005; Page A20
A strange and astonishing thing is happening in Washington as a House-Senate conference committee debates its final tax bill: Democrats are discovering the virtues of cutting taxes for "the rich." Of course there's a catch, but the political by-play is too amusing to ignore and might even help tax cutting in the future.
This new-found liberal demand for tax relief concerns one of their own creations -- the alternative minimum tax. The notorious AMT is the IRS's revenge on taxpayers who dare to take entirely legal tax deductions. Make enough money while deducting for (say) state taxes and the child tax credit, and the AMT sweeps you up lest you pay too little tax. As a friend of ours quips, it should really be called the RMT, for required maximum tax.
Liberals designed the AMT back in 1969, ostensibly to snare (literally) 21 millionaires who managed to pay no income tax at all in 1967. But as incomes and deductions have increased over the years, the AMT has gradually hit more and more taxpayers, especially the upper-middle-class in such high tax states as New York, New Jersey and California. It's a liberal tax that now hits liberal states especially hard.
Which explains why blue state Democrats are suddenly demanding that GOP tax writers include AMT relief for 2006 as part of the tax package that is now in conference. Without such relief, the AMT may hit as many as 20 million households next year, up from nearly four million this year. Max Baucus, the ranking Democrat on the Finance Committee, insisted that Chairman Chuck Grassley include AMT relief in the Senate bill, and such famous class warriors as Hillary Clinton and Chuck Schumer actually voted for the tax cut. As is his habit, Mr. Schumer issued a press release taking credit for saving "thousands of New Yorkers from facing a big tax increase next year."
Never mind that AMT relief will cost the Treasury some $29 billion, according to the static-revenue estimate of the Joint Tax Committee. Somehow all that outrage by Democrats about "the deficit" seems to vanish when their voters are getting the tax relief.
The tax hijinks are even more hilarious in the House, where ranking Ways and Means Democrat Charles Rangel blew a gasket because AMT relief wasn't included in the House bill. The Congressman from New York City went so far as to complain that millions of Americans may actually pay more in capital gains and dividend taxes without AMT relief.
He had his staff calculate, and then broadcast to the media, that the needy souls making between $150,000 and $382,000 will pay a rate as high as 22%, instead of the statutory 15%, because of the AMT. Yes, this is the same Charlie Rangel who opposed the Bush tax cuts of 2003 that passed the 15% rate. Has Mr. Rangel been canoodling with Steve Forbes in his spare time?
Alas, no. Mr. Rangel opposed the GOP bill that passed the House not merely because it lacked AMT relief, but also because it does include a two-year extension of that same 15% rate on dividends and capital gains to 2010 from 2008. Never mind that those extensions would "cost" the Treasury only $21 million over five years -- less than AMT relief. Apparently, Mr. Rangel only wants to cut taxes for the "rich" who live in his own district.
May we suggest a compromise? The Republicans running the House-Senate conference could do everyone a favor if they include both AMT relief and the capital gains and dividend extensions in their final bill. The latter would be more important for the economy by helping to sustain the boom in business spending that has powered growth since 2003.
But if a little AMT grease is needed to get Democrats to vote for the lower rates, so be it. This is no doubt what the crafty GOP Chairman of Ways and Means, Bill Thomas, had in mind when he excluded AMT relief from his House version. Perhaps he also wanted to smoke out Mr. Rangel's tax-cut contradictions.
There's a larger lesson here for the tax reform debate, assuming we ever have one. For all of its sins, the AMT is the main carrot that Republicans have to induce Democrats to consider supporting lower tax rates. If Republicans lead by proposing to eliminate the AMT, Democrats will pocket that concession and oppose everything else. Far better to let the class-war Frankenstein that is the AMT terrorize the liberal countryside until Democrats decide to cooperate. The recent report of the President's Tax Reform Commission fell into the trap of proposing to eliminate the AMT first.
Meanwhile, we'd like to thank our liberal friends in Congress for this recent revelation. We didn't know they cared so much about the after-tax incomes of affluent taxpayers. |
