Alternative Minimum Tax update

I mentioned the Alternative Minimum Tax (AMT) the other day, briefly. Well. David Corn, plus others at his new deal, cqpolitics.com, have looked into the matter further, as has a fellow by the name of Jeff Birnbaum:

No one says so out loud but Republicans are not as eager to fix the alternative minimum tax as Democrats are. A nice bit of irony, don’t you think?

The AMT was designed in 1969 to make sure that millionaires couldn’t use loopholes to avoid paying income taxes altogether. But during a rewrite, the AMT was not indexed to inflation, which meant that middle-income people started to get hit by it as well. This year, unless Congress acts, 23 million middle and upper middle-income households will have to pay more taxes because of the AMT.

The people who’d be hit hardest, it turns out, live in blue states. California, for instance, would have 1.7 million more AMT payers this year. New York would have a million more. New Jersey would have 750,000 more and Massachusetts would have 500,000.

Besides leaning Democratic, these states also have relatively high statewide taxes, which figures into the AMT calculation. But the fact remains. Red states don’t tend have as many people looking at an AMT tax increase as blue states do.

It’s worth noting that anti-tax Republicans won’t be rushing to vote for the so-called patch of the AMT in the House. In fact, they will largely vote against it, saying that the tax increases used to pay for the fix are harmful to the economy.

I have no doubt that they believe what they say. But it’s also true that they have less at stake than the Democrats in preventing the AMT from reaching the middle class. If Congress fails to act, there will be a lot more angry Democratic voters than Republican voters.

The silver lining? The only way to finally get rid of the AMT will be a tax reform so sweeping that it will probably also have to solve the other major problems our government faces, from Social Security to health care. The AMT woes could end up forcing the government to finally get down to serious work.

The ‘fix’ of the AMT, plus the increase in tax on carried interest, plus a bundle of other changes, are all a part of said overhaul:

Charles B. Rangel ’s mammoth tax code overhaul checked in Thursday at a cost of $1.3 trillion, as the House Ways and Means Committee chairman unveiled his ambitious fiscal agenda.

The bill’s broad strokes have been known for weeks, if not months: repeal of the alternative minimum tax, expanded benefits for middle-income taxpayers, higher income taxes for the wealthy, a corporate tax rate cut and an array of tax-raising provisions to offset the cost and make the entire package revenue-neutral.

Republicans pounced swiftly, denouncing the plan as a huge, unnecessary tax increase.

“Imposing higher taxes at this time will doom our economy, put people out of work and cost the federal government revenue that is badly needed, if in fact we’re going to balance the budget,” said House Minority Leader John A. Boehner , R-Ohio.

Rangel defended his approach, pointing out that compared with current law, the bill is revenue-neutral.

“We are not raising taxes,” he said.

Eco 1 students! This is a perverse, not to mention extreme, form of bracket creep.

Crooks and Liars isn’t a bad starting-place for one to get a feel for Boehner, before listening to a single thing he says. Shooting from the hip, of course, it would behove one to remember that Boehner was a part of the GOP when it had over a freaking decade to do something with the budget besides borrow shedloads of money, leave every child and poor person behind, drowning or both, and run the economy into the ground. The Gingrich revolution and every Republican that had to resign in disgrace along the way doomed the US economy. But I digress. If we can ignore the party that brought you John Kerry’s 350 tax increases.

Following the tip from David Corn, I used the data from The Tax Foundation to compare the AMT burden from 2005 (the most recent year they had):

red-blue

The US average is yellow; the states are blue or red, according to the 2004 Presidential elections. Red State/Blue State is kind of a dumb game, so one can also use the 2006 Congressional election results to make some bars purple:

red-blue-purple

The first reminder is – at least to me – the weirdness of the poor people repeatedly electing politicians that they cannot possibly comfortably afford (returning to the likes of Boehner). One can see, though, just whose constituency is most affected by the creeping Alternative Minimum Tax (soon to be popularly known as the Alternative Middle Class Tax – you saw it here first!). Virginia becomes the biggest football – once red, now purple, and high up the list. The GOP probably ought to reconsider its “sucks to be a Democrat” approach to, well, everything, frankly. Wankers.

To return to/close on the analysis of David Corn:

Assuming the rest of the electoral map doesn’t change from 2004, capturing Virginia’s 13 electoral votes would not put a Democrat over the top in 2008. But there’s more: Ohio is No. 12 on the AMT list. In 2004, Bush claimed the state with a 118,000 vote lead, about 2 percent. Since then, the state Republican Party has imploded, due to various corruption scandals that have thrown GOPers out of office and, in some cases, into jail. It’s not too hard to imagine a damn tight race there in 2008. If a couple of thousand angry AMT victims in Ohio decide to vote D instead of R, that could help the Democrat bag the election-tipping Buckeye State.

Sure, there’ll be a lot of other factors that determine what happens in Ohio and Virginia. But the so-called ticking time-bomb of the AMT could end up detonating beneath the Republicans.

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