"More people are getting caught in the AMT trap for two reasons. One is that inflation is pushing middle-class people into territory associated with the rich. The other is that George W. Bush's first-term tax cut lowered the regular income tax for affluent people so dramatically that many more people qualify for exactly what the AMT is supposed to do -- make sure that nobody with a high income gets away with paying little or no income tax. Bush's tax cut was, in this sense, a fraud. He let people escape the first fence, knowing that many would be caught by the second. All the budgets of his presidency have assumed -- and spent -- the money the AMT raised, even as he and every other Republican has inveighed against it."
***In the Oct. 11 Wall Street Journal, Sen. Charles Grassley (R-Iowa) urged repeal of the AMT and expressed great frustration, contempt and downright bewilderment about the so-called "pay as you go," or "pay-go," rules of the Democratic Congress. Under these rules, lawmakers can't introduce a tax cut without saying where they propose to get the money to cover it. Can you imagine anything sillier? Grassley cannot. With an inflamed sense of indignation but a firm grasp of arithmetic, Grassley noted that if you try to eliminate the AMT under this rule, as the Democrats are trying to do, "vast numbers of people would see their taxes go up."
That is absolutely true. Every dollar someone's taxes are lowered is a dollar that someone else's must be raised. Unless, of course, you forget about those ridiculous Democratic "pay-go" rules -- "a simple procedural step," as Grassley put it. And what about the $840 billion that the AMT is supposed to bring in over the next 10 years? Grassley doesn't say what he would do about that. More to the point, Republicans urging repeal of the AMT without a compensating increase in top brackets of the regular income tax (the Democratic solution) have never said where they'll get the money. Oh well, said Robert D. Novak in his Post column published the same day as Grassley's piece in the Journal, if we kill the AMT, "Government would have to get leaner." Next problem?
In the six years that ended in January, during which time they controlled both Congress and the White House, Republicans could have made government as lean as they wished and no one could have stopped them. They didn't. It used to be that when they proposed irresponsible or phantasmagoric tax cuts, Republicans at least went through the motions of coming up with some theory about how it would all be paid for. Supply-side economics -- tax cuts would pay for themselves by generating new economic activity -- often played this role. It made no sense, but it honored the tradition that you at least give the voters the material they need to fool themselves. It was the tribute that demagoguery pays to mathematics. Now, they don't even bother.
The problem with present arrangements isn't the AMT; it's Bush's tax cut for the affluent. For example, Citizens for Tax Justice (a left-wing group, but one whose analyses are rarely challenged by neutral experts) figures that the most startling element of that tax cut -- the reduction of tax rates on both dividends and capital gains to a maximum of 15 percent -- reduced tax revenue by $91 billion in just one year (2005). Three-quarters of that benefit went to taxpayers -- the top 0.6 percent -- who reported incomes of more than $500,000. The AMT prevents the federal deficit from being even higher than it is. Although it no longer strikes only the very tippy-top incomes, it still is fairly progressive: Even in 2010, when the AMT will hit 20 percent of taxpayers if it isn't changed, more than half of AMT revenue will come from taxpayers reporting incomes of over $200,000.
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