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Saturday, November 11, 2006

A Pig in a Blanket: The Democrats Plan to Roll Back the AMT 
...So the Democrats are planning to undertake what will undoubtably be a popular measure: roll back the Alternative Minimum Tax.

This is not exactly good news for Middle America, for reasons I'll get to in a moment. But then again, the Democrats hate middle America.

Don't have time to get too in depth, but here's the gist of it: The Alternative Minimum Tax was created in the late 1960s after a couple of hundred super wealthy individuals, through a combination of tax deductions and shelters, were able to avoid paying any income tax at all. This was obviously not what congress intended, so they created a separate way of calculating income tax, that disregards a number of key exemptions, such as home mortgage interest and dependency deductions, certain municipal bonds (no, they are not all federally tax-free for AMT payers) as well as screwing you on certain kinds of stock options. If you want the technical details, click here. Yes, I wrote the article, way back when. I was young! I needed the money!!!!

At any rate, one of the biggest factors in determining whether taxpayers are subject to the AMT is the size of their home mortgage deduction. All other things being equal, the more house a family has, the more likely they are to pay AMT, and the higher the amount.

Now, stop to think where the highest home prices are? That's right: San Francisco, the California coast, New England, South Florida, and Hawaii. All big blue areas, and reliable Democrat constituencies. Oh, don't forget Northern Virginia and Washington D.C., which is where all these Congressmen live for much of the year. Washington, D.C., will be a huge beneficiary of the tax move.

The Alternative Minimum Tax represents a substantial piece of federal revenue. If the Democrats mean to eliminate the AMT, they will no doubt attempt to make up for the revenue somehow: Most likely by allowing EGGTRA to sunset and raising income taxes across the board - even on the 10% tax bracket that was created by EGGTRA - but also by raising income taxes levied on everyone else, nationwide. Look for an increase in capital gains taxes as well: Long term CG taxes will probably rise from 15% to 20%. Short term CG taxes will match the Clinton-era tax brackets, if not go higher. Annuity companies will make out like bandits.



The result: A massive transfer of the federal tax burden from the coastal areas to the heartland - by perhaps 500 to 700 billion dollars over the next decade by my own back-of-the-envelope calculations. Meanwhile, Nancy Pelosi's and Hillary Clinton's constituents will make out with a tax savings bonanza. They'll probably get a nice property value boost as well.

Who will pay for it? Middle America, that's who. Every area with more modest home prices. Including Mississippi. But as Charlie Rangel said, "who wants to live in Mississippi?"

Charlie Rangel probably understands what's coming.


Splash, out

Jason

Comments:
Looks like a great way to dissuade legitimate businesses by providing unregistered businesses a HUGE price point advantage over those who are a cheating.

The incentive to provide a steep discount for off-the-books cash sales would be simply enormous. Loads of legit businesses would go under because of the competition from off-the-grid businesses. Many others would simply go off-the-grid themselves. Internet sales by private parties would take off.

Workers would suffer, because firms that provide health care benefits and pensions would have to be on the grid, and therefore be at a huge competitive disadvantage.

Loads of other workers would be laid off entirely. The current income tax system taxes profits AFTER labor costs.

This just looks like a dumb idea.

Besides, Congress will still screw with it, securing exemptions for favored lobbies, until it's as complicated as the current tax code. No thanks!
 
A fine piece of demigogery!

Seriously, slamming the democrats for something that YOU say they want to do is pretty meaningless. Besides they have a scant majority which is hardly enough to pass anything, much less override a veto.

The fact is that the AMT is a very bad law since the factors that determne your income tax liability change dramatically the instant you pass some threshold test.
 
I didn't say the Democrats wanted to roll back the AMT. The Democratic leadership did. Read the first paragraph of the freaking story!!!

And your assertion, "The fact is that AMT is a very bad law" is not a fact at all, but an opinion. It's not a bad law, as tax laws go. It's a bit dated, because exemptions weren't indexed to inflation. But recent congresses have done so, on a de facto basis.

It's not a bad law or a good law. It just is. It is effective at what it was intended to do. It can be tweaked, as we've been doing on a year to year basis, more recently.
 
I seem to recall that Red states are net beneficiaries of Federal dollars - i.e. they get from the Feds more than they send to Washington in taxes - while the Blue states pay more in taxes than they get from the Feds. If this is true, and this measure counterbalances it, then it is a good thing. There is no reason the "heartland" should get a handout at the expense of the coasts.
 
The democratic leadership may have said they want to repeal the AMT, but you made the assumption about how they would compensate for the loss of tax revenue, and chose to ignore the very real limits on what they can get done. The last time I looked, New England plus California does not constitute a majority.
 
You watch. An AMT repeal will sail through Congress once it starts. No Congressman will want to get in the way of that steamroller.

Meanwhile, EGTRRA will quietly expire and the Democrats will have raised taxes on the whole country without actually having voted for the tax increase.

Former Treas. Sec. Robert Rubin is already out in front on this issue, saying we need a tax increase. Bill Clinton will soon be laying down political covering fire.

Let's put it this way: If they do not offset the loss of AMT revenue with other tax increases, then they will be essentially buying into supply-side economics and vindicating Ronald Reagan.

This they will never do.
 
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