One learns over the years not to get too excited about any proposal coming from Washington that seems like a good thing. One must wait for the dust to settle, read the text, examine the fine print, and generally look past the sloganeering. The Bush tax cut is a good example. The more we know, the more suspicious we become.
Bush may be the biggest big-government president ever, but his tax-cut proposal has bought him time. It seems that he wants to step up the timetable for implementing his last tax cuts (only now is the word getting out that the last one hasn’t even come into effect yet!), increase the child-tax deduction, and eliminate taxes on dividends (which, on the margin, helps companies that pay them, old-line companies with more political connections).
It’s not perfect, but surely this is a step in the right direction, right? Not so fast. Buried on the business pages today is a stunning revelation. The Bush tax cut does not address what will be the most aggressive means of taxation in the coming ten years, the thoroughly evil Alternative Minimum Tax. If nothing is done about this, it will become a larger revenue generator in the future than the current income tax. The Bush plan does nothing to remedy the problem.
The AMT was originally justified as a way to further loot the well-to-do. Mark Thornton explains:
“It was instituted at a time when the highest marginal tax rate was 90 percent, and the tax code provided lots of juicy tax loopholes for wealthy Americans. Tax rates have dropped — but now the AMT, like a stealth bomber, is raising the tax burden on those earning as little as $33,000.
“You could be one of the nearly 30 million taxpayers (according to an estimate from the Joint Committee on Taxation) that will have to pay the AMT. That is roughly one in five of all taxpayers. The Bush-league tax cut pushes more taxpayers into the AMT because it lowers regular rates without lowering the AMT rates.
“Therefore, just a few itemized deductions and — whammo! — you pay the AMT, and your deductions go right out the window. Say goodbye to deductions for state income taxes, medical expenses, business expenses, and even certain home-equity loans.
“With the AMT, you still have to fill out your conventional tax forms, but if you make the minimum, you must refigure your taxes without all your deductions and then pay the ‘flat tax.’ Given that low-income Americans pay little of the total tax burden, we now effectively have a tax system with all the complications of the old tax code alongside the crushing burden of a system designed to stick it to the rich.”
The trouble is that the AMT is deliberately not inflation adjusted, and hence is imperial vis–vis the decline in purchasing power. The more the Fed inflates, the more people get roped into the system. The AMT starts to hit one-child families with incomes of $71,000 by 2006, and couples with two or more children will see their tax credits destroyed. Even with Bush’s plan, the number of people paying the AMT will rise by 9 percent this year and the taxes paid will rise by 28 percent, and then it expands year by year. Over the next 8 years, the AMT monster will seize half a trillion dollars, looted from the middle class and the upper middle class, to fill government coffers.
The Bush administration says that it doesn’t have any intention of addressing the AMT. His first tax bill didn’t address it and neither does this one. “President Bush was elected on a promise to cut taxes,” said the administration’s first tax policy official Mark Weinberger, “not reform the alternative minimum tax.” Meanwhile the beast continues to fatten and grow longer teeth.
But does the AMT make headlines? Of course not. Only tax accountants seem to care. Just the letters “AMT” alone are enough to induce stupor. The information that the Bush tax proposal does not address the problem, and the implications of not doing so, appears buried deep within the business section that political reporters don’t even read. Or if you read the Electronic Accountant, you surely know all about the problem.
Meanwhile, the news of the supposed tax cut, and the usual sham between the small-government Republicans and the big government Democrats, is all over the place, and the illusion continues. Ten years, hence, however, we will look back and note that the Republicans controlled the White House and Congress, and did nothing to slay the beast that is preparing to devour the American middle and upper middle classes.
Of course, the Bush administration knows exactly what it is doing. Whether you look at foreign policy, privacy concerns, government spending, or tax policy, the goal is the same: Build the State!