I sort of wonder whether Tyler Cowen actually read this article on Democratic attempts to reform the Alternative Minimum Tax. Responding to the news that Democrats are "preparing legislation that would permanently shield all but the very richest taxpayers from the alternative minimum tax," Tyler writes, "this rather non-egalitarian policy, very costly in terms of revenue, is the Democratic attempt to reward their wealthy urban and suburban supporters...It was ugly what years and years of power did to the Republican Party. The particular interest groups will differ, but I do not understand why the progressives expect anything different better from the Democrats."
First, it's not costly in terms of revenue. As the article makes clear, the discussions now are how to actually replace AMT revenue. So the question is really what mechanisms they'll come up with to do that -- and for now, we simply don't know. Rahm Emmanuel, apparently, wants to replace it with new taxes on the rich. That would be all sorts of fine with me. It would be not only be more egalitarian, it would be more progressive. Alternately, using AMT repeal as a pretext for comprehensive tax reform would also be a damn good idea.
Moreover, the reason Democrats feel the political pressure to do this is a series of cynical fiscal decisions made by the Republicans. Bush's tax cuts dropped the tax rates without changing the AMT. Without them, 16 percent of Americans would have paid the AMT in 2010. With them, that number explodes to 33 percent. Here's how this looks:
Worse, the Republicans temporarily exempted millions of families from the AMT for the last few years in order to make the tax cuts seem more sustainable and remain more popular. But all their budget projections admitted the return of the AMT -- which will now be all the more onerous and surprising, and which unsuspecting taxpayers will be all the likelier to rebel against. Democrats, who actually want to keep their majority, have to do something about the various fiscal landmines Republicans have littered across the landscape. But the question of who benefits from their Democrats' proposed policy fixes can't actually be answered until we know what those fixes will be.
