Okay, sit down for this bit of heresy from me:
Keep the Alternative Minimum Tax (AMT)!
I dislike the AMT as much as the next guy, as it nicks me pretty hard every year. But one reason Democrats are terrified of it is that it hits hardest the high-tax blue states, which typically have higher state income and property taxes that can’t be deducted under the AMT, such as New York and New Jersey. As such the AMT is a modified flat tax.
Cast your mind back for a moment to the debate over the original Reagan tax reform proposal of 1986. Reagan’s first plan would have ended for everyone the deductability of state and local taxes in return for lower rates across the board. The chief opponent of this was New York Gov. Mario Cuomo, who knew that it was a de facto tax hike for New Yorkers. The point is, deductability of state and local taxes is a de facto federal subsidy for high tax states, and therefore a buttress for liberalism.
Reagan’s original proposal was dropped, but the non-deductability of state taxes lived on in the AMT, and is now biting blue state folks hard since it was not indexed to inflation.
Pat Buchanan, in 1986 Reagan’s communications director, got the matter right with this pungent comment in defense of Reagan’s initial proposal: “We do not believe in a neo-socialist approach to government that redistributes wealth. This plan will force people to take a second look at government and see what they are getting from it.” Cuomo called it “wrong, insulting, unfair, and denigrating.” Heh: That’s why I like it.
It is fun watching liberals squirm over this. They hate to give up the money, but their own constituents will be increasingly up in arms so long as the AMT lasts. It can’t be "patched" every year forever. Look for the Democratic Congress to repeal it outright before long.
Good points. But isn't the deductibility of state and local taxes a bow to federalism? The federak income tax itself was a powerful blow against the states, and the deductibility of state and local taxes reminds us of their right to tax to perform the functions given them by the Constitution.
I never understand why conservatives freak out about the AMT. Its a 26% [28% for slightly higher income] flat tax. It features a large exemption so its not regressive. It sounds pretty much the same to me as the Fair Tax some conservatives champion except its tax base is income rather than consumption. If someone could explain to me why conservatives/Republicans dislike the AMT while thinking the Fair Tax is great I'd appreciate it.
Thanks for the post about tax/finance, I wish this blog had more of it, and less morality, etc.
Except it is another tax added on, not the only tax.
Matter of fact, if you add up the various fees and taxes from local, state, and federal governments you will realize that the U.S. citizen is heavily taxed.
steve, can you provide a link to some of the numbers that provide evidence for your argument? thanks so much.
Steve, do you really think there is enough savvy in the GOP leadership to take advantage of the deep unease caused by the Alternative Minimum Tax? I don't think so.
12 long years of Bush led political incompetence has left us without a bench when it comes to political savvy.
Not to mention the fact that many vote Democrat not for financial and fiscal considerations, but as a social statement, a fashion statement, especially Yuppie types.
Isn't Charles Rangel pushing the AMT reform?
Conservatives who like the Fair Tax like it because it is a consumption tax and dislike income taxes on principle. The Fair Tax is also supposed to support increased savings (investment). There is more to it, but my husband is a voluble Fair Tax supporter and I have heard about it so much that I tend to tune out when he gets going on the subject.
If high local taxes are deductible federally, isn't that a subsidy by low-tax states to high-tax states?
I don't see politicians, especially liberals, giving up the income tax. The Fair Tax requires super-duper majorities to repeal the Income Tax Amdt. Forget it. Give up the power to redistribute wealth? To social-engineer? To sell tax policy and bury it in a 10-ft. code?
On top of that, the Fair Tax is revenue-nuetral. That is, it promises not to cut taxes, only shift them. I don't see a super-majority generated for that, even if it would end the IRS.
Steve,
The AMT was supposed to address people who were paying less because they were sheltering income or in some way paying less than someone thought they "owed." But it has gotten me the last couple of years (not a substantial difference but irksome) because I have a lot of kids and therefore a lot of deductions. The point of the AMT was not to penalize big families, although I am sure there are some environmentalists who think that would be good policy. Deducting my kids is not sheltering income. At the least, this should be addressed.