Over at Slate, Daniel Gross is explaining, once more, the role the Alternative Minimum Tax continues to play in the Bush administration’s deceptive tax policies.
The AMT is a bizarre parallel-universe of taxation with its own set of complex rules that differ from the normal IRS system. It was passed decades ago as an effort to prevent gazillionaires from using elaborate tax shelters to reduce their tax bills to zero. For many years it was easily ignored by the vast majority of Americans, and as recently as a few years ago the only non-super-rich people who worried about it were tech-industry types who’d hit the stock-option jackpot but played their cards wrong.
But the AMT was designed with its very own time-bomb: It was never indexed for inflation, and so each year the rising tide of inflation — even the slow, relatively benign inflation the U.S. has experienced in the last decade — lifts more and more middle-class Americans into its maw. The obvious answer is to fix it, either by repeal or by indexing it for inflation so it continues to apply only to the gazillionaires who were its original target. Shouldn’t be so hard, right?
Wrong. Because all those improbable Bush Administration forecasts of gradual deficit reduction depend on vast new federal revenue from the AMT. If you “fix” the AMT, you plunge the government way deeper in the debt hole than even the shysters running Bush’s fiscal policy could defend.
In other words, those big tax cuts that the administration keeps demanding be made permanent aren’t tax cuts at all — they’re tax transfers. The Bush policy is simple: Let’s cut taxes on dividends — which happen to fall most heavily on the wealthiest Americans — and raise taxes, via the AMT, on the upper-middle class (and increasingly, the middle class). Right now, the AMT is kicking in on two-income families with kids earning $100,000 or more in high-tax states like California and New York. (And yes, it’s been often noted that the AMT tends to hurt those in “blue” states most.) Each year the threshold gets lower.
Gross warns that this spring the IRS will report big fat gains in federal tax receipts and the Bush team will crow about how successful their supply-side tax cut has been. Don’t buy it: They’re not cutting taxes, they’re playing a shell game, and — unless we make a point of exposing the fraud and educating ourselves and our neighbors — we’re the suckers.