Will the AMT blob get you on tax day? The "Alternative Minimum Tax" is touching more and more taxpayers every year. Back when our lawmakers wrote it in 1969, they were targeting 155 taxpayers; by 2006, it will touch 15 million of us.
The AMT was initiated, passed, and strengthened during the LBJ and Carter administrations, weakened by Reagan, and finally super-strengthened by Clinton. But the lawmakers who wrote, passed, and strengthened the AMT somehow forgot to exempt the future middle class from the tax; it was never indexed for inflation. Oops.
Today, the political rhetoric is getting comical. I've said for a long time that politics trumps economics, and today's AMT debate is a great example.
Democrats usually love to complain about the Bush deficits, so one would expect them to favor keeping future deficits down by leaving the AMT alone, wouldn't one? But no; the proper party line today is that the AMT is badly flawed; moreover, it's not the fault of LBJ, Carter, or Clinton for pushing a stupidly-written law when they were in charge. No, this is now, and it's Bush's fault.
On the other side are the Republicans, who usually love to cut taxes—so one would expect them to jump at the chance to reform the AMT, wouldn't one? But hold on; the proper party line today is that the Democrats wrote it, passed it, strengthened it—and are now seeing it become a blue-state-boomerang. So why not let it ride and enjoy the poetic justice?
To me, it looks like the Republicans have a political dilemma to resolve: go for reform and get rhetorically nailed for "bigger deficits," or let it slide and end up getting nailed for a "sneaky middle class tax hike." It also looks like the Democrats have the flip-side dilemma: go for reform and eat crow for the short-sighted law they wrote and strenthened, or let it slide and get nailed for a stupid law that now says "if you're middle class, you're rich, and guess what: you don't need all that money, so turn it over to us, your wise government."
By the way, we can forget the economic debate. (Would AMT reform generate sufficient economic growth to offset the effect of a bigger deficit? Would the redistributive effects be desirable, in spite of bigger deficits?) Based on past experience, I confidently predict that debate won't happen, so never mind those economic questions. Politics trumps economics.
In any case, Bruce Bartlett wrote the most level-headed moral to this story:
Laws designed to soak the rich eventually end up hitting the middle class.
Bruce is right, and "eventually" has arrived. Because I enjoy a good laugh, I'm tempted to say, Let 'em stew; I enjoy watching politicians squirm.
However, I also enjoy the ability to afford slightly better vacations (an extra glass of wine or two, an extra nice dinner or two, and an extra ten minutes, or five, at the craps table). Consequently, my own position is this: enough is enough, let's reform the AMT. What about the deficit? It won't increase the debt burden if the economy grows at least as fast as the debt does. Will the economy grow fast enough to achieve that? That's precisely what I'd like to hear our politicians start talking about: economic growth, and whether or not fiscal policy can affect it, and why or why not. But I'm not holding my breath waiting for a substantive debate like that. Reason, once again: Politics trumps economics.
So let's enjoy the battle of the talking points while it lasts, then reform the AMT. I'd settle for going all the way back to the Democrats' original intent by limiting it a maximum of 155 taxpayers, too.