Sebastian Mallaby's got a terrific column today blasting the the senseless, fiscally irresponsible team of Max Baucus and Chuck Grassley, who've decided to declare war on the Alternative Minimum Tax while eschewing any talk of replacing its $750 billion in revenues with anything new. Baucus appears to think increased tax enforcement will make up the shortfall, which is akin to replacing your job income with change gathered behind the couch. Grassley, meanwhile, is taking a brave stand against the economics of taxation: "It's unfair," he blustered, "to raise taxes to repeal something with serious unintended consequences like the AMT!" I sort of hate to do this, Chuck, but remember those tax cuts? The ones you voted for? Here's what they did:
The AMT, which was created to ensure the rich couldn't deduct and shelter their way out of taxation, was created in 1969. It kicks in when folks making above a certain income pay below a certain tax rate. Not indexed for inflation, the share of the electorate paying the AMT grew over the past few decades. Bush's tax cuts, however, sparked a massive drop in rates, bringing millions under the limits and exploding the AMT's reach. Without them, 16 percent of Americans would have paid the AMT in 2010. With them, that number more than doubles, to 33 percent. This reckoning was put off the by tax cutters in the form of a temporary exemption from the AMT, an irresponsible little shell game meant to superficially improve the budget projections they used to sell the cuts, thus making them look more fiscally responsible. That the very same tax cutters -- like Grassley -- are now seeking the AMT's repeal without any replacement shows the depth and cynicism of their deception the first time through. And here's the consequence: In 2006, 3.5 million taxpayers paid the AMT. In 2007, that'll shoot up to 23.4 million.
The hope of most policy wonks is that the AMT will provide the impetus for a wholesale restructuring of the tax code -- possibly in the direction of something like Ron Wyden's Fair, Flat, Tax Plan. Some even suggest that the AMT could be modified into the only tax rate and the words "Alternative Minimum" simply struck from the phrase. There's some precedent for reform at this point in Bush's presidency: Ronald Reagan, weakened and looking for accomplishments by the last two years of his term, largely accepted a plan championed by Dick Gephardt and Bill Bradley which largely became the Tax Reform Act of 1986. But what Baucus and Grassley are pushing isn't reform: It's fiscal demagoguery, and they should be roundly criticized for the offense. Is it really so much to ask that the Chair and ranking member of the Senate Finance Committee betray a working knowledge of finance?
