Jay Reding.com

Democrats First Move: Cut Taxes On The Rich

The incoming Democratic Congress is planning on eliminating the Alternative Minimum Tax (AMT) in the next session of Congress.

The focus on the AMT is hardly surprising, given that victims of the tax have been concentrated in high-cost urban areas such as Washington, New York and San Francisco — places that tend to vote Democratic. Rangel, Hoyer and Nancy Pelosi (D-Calif.), the presumptive House speaker, all represent states hit hard by the AMT, which is sometimes called the “blue-state tax.” To map states with the highest concentrations of AMT taxpayers is to draw bull’s-eyes over California and the Northeastern seaboard.

So, it makes sense for the Democrats to want to get rid of the AMT. However, the AMT tends to hit taxpayers in the $100,000 to $500,000 range — the same people that the Democrats want to smear as being part of the unjust “rich”. This is a tax cut that will mainly affect the top 5% of taxpayers — it’s one of those dreaded “tax cuts for the rich” that Democrats were supposed to stop.

Not only that, but the cost of this proposal will be $1 trillion over the next 10 years. The Democrats claim that they’ll offset that cost, but I doubt that the Democrats will be willing to cut spending, and they won’t have the votes to raise taxes elsewhere. The effect of this plan is to further take the “government’s money” and “give it” to high-income coastal Democrats. How much of that $1 trillion in money going into the hands of the wealthy could be spend on making white flags for our troops in Iraq, passing out body armor for cops, or building Rep. Kucinich’s “Department of Peace?” So much for this election being a progressive victory…

UPDATE: It’s fascinating watching the Democrats try to unspin their own arguments. Someone making $100,000 is in the top 16% or so of all taxpayers. It’s hardly “progressive” to undo a tax that affects only the upper echelons of American society. While I personally support lowering or eliminating the AMT outright, it’s exactly the sort of thing that the Democrats would have once vociferously criticized the Republicans for had they proposed it.

It may in fact be good policy, but it’s also hypocrisy on the part of the Democrats.

If the AMT repeal is offset by decreases in government spending, it would be the best of both worlds — however, I rather doubt that the Democrats have the guts to pull that off. Even if they tried to cut spending to “red” states, too many Democrats now come from conservative states to risk that course of action. Instead, what we’ll get is undoubtedly an AMT reduction paired with other tax increases that will negate whatever positive effects just tweaking the AMT alone would have. Getting rid of the AMT would be a good thing — but not if it ends up just raising taxes on the very people it’s hitting now.

15 responses to “Democrats First Move: Cut Taxes On The Rich”

  1. Nicq MacDonald says:

    Okay, so tax cuts are only GOOD when they’re passed by Republicans? I thought that every time taxes were cut, revenues went up? That’s the logic you’ve been using for the last five years.

    I thought you were afraid of the Democrats doing just the opposite- raising taxes. What gives?

  2. Nicq MacDonald says:

    Also, Jay, I shouldn’t have to point this out, but one of the Democratic campaign promises was a middle class tax cut.

    On the coasts, $100,000-500,000 isn’t ultra-rich; it’s middle class. These are small business people, doctors, lawyers, engineers, scientists- the same people that you’ve repeatedly said drive our economy and deserve tax cuts as a stimulus; they’re the ones out earning their money. That’s pretty far from ultra rich, especially when they live in places like San Francisco or Santa Monica, where a simple two-bedroom one-story house can be valued at $1.5 million. Only to midwestern eyes does $100-500K look “rich”; in many places, it’s the minimum needed to cover an urban mortgage without taking out 50-70 year loans.

    Of course, you can go ahead and ignore this; “blue-staters” are just a bunch of decadent elitists who don’t have to go out and earn their money. Never mind that unlike the Bush Tax Cuts, this benefits the productive part of the “top five percent” more than the unproductive part. Never mind that I have yet to meet any of these decadents- every New Yorker, Californian, and Washingtonian that I’ve ever known is a working professional. Never mind that a tax cut like this, if your theory holds up, will deliver more money to the most productive and entrepreneurial portion of our citizenry and stimulate our economy in such a way that this $1 trillion that will supposedly be “lost” (wait, wasn’t it the people’s money to begin with?) will be offset by the economic growth caused by the investment and spending of the money returned to the middle class.

    Nope, never mind any of that. If it’s proposed by the Democrats, it can’t possibly be a good idea. Jay, your partisanship is showing, and it doesn’t become you. This proposal is one that, had it come from the GOP, you’d be supporting as the best idea in decades; economically, it should do everything that you want a tax cut to do- it targets the people you want to target.

    But if Nancy Pelosi is supporting it… all bets are off.

    Sorry if I seem a little angry, but I’ve always thought better of you than this. If the Democrats stole the economic playbook that the GOP promised over the last five years and failed to deliver, I’m sure you’d be coming up with reasons why every idea in it was a bad one. This is just asinine.

  3. […] And here I never thought I could be compelled to post about taxes. Jay Reding says that the Democrats wants to appeal the Alternative Minimum Tax, which he paints as a “tax on the rich”. Ergo, the Democrats must not be as progressive as they pretend to be! Eh, nice try. The problem is that the article never says they want to “eliminate” the tax; it says they’re looking to “fix” it. And fixin’ it needs: the AMT, which was intended as a tax on top earners, is increasingly snaring middle Americans. The tax’s deductions has never been adjusted for inflation, which means that it’s now snaring families who make over $100,000 a year. That may seem like “rich” – until you consider the spiraling housing costs in areas like San Francisco and Seattle. […]

  4. Jay Reding says:

    Actually, I do support the repeal of the AMT — however, my point is that it is exactly the sort of thing that the Democrats have decried for the past 6 years. The Democrats have continually lumped those effected by the AMT into the category of the “rich”, and now that they’re in power, why they happen to be middle class again.

    Repealing the AMT is good policy, but it’s also a repudiation of the Democrat’s supposedly “progressive” agenda. Nearly every single one of the criticisms that the Democrats have launched against the Bush tax cuts could be applied to this one as well.

  5. Mark says:

    Alternative Minimum Tax was a ticking time bomb revenue-wise poised to affect the middle class in the near future. Republicans talked and talked and talked about it but did nothing because they thought it might jeopardize their goal of income tax cuts and stock dividend tax cuts targeted more specifically to the rich than the AMT. It’s gonna be amusing watch you devolve into full-on petulance now that the Democrats have the power in Washington. I’m gonna thoroughly enjoy the ride.

  6. Jay Reding says:

    Alternative Minimum Tax was a ticking time bomb revenue-wise poised to affect the middle class in the near future.

    Odd then, how someone who spend years arguing that people who make upwards of $100,000 were the filthy rich now suddenly admits those arguments were specious. If the Republicans were advocating this very same position, you would inevitably be decrying it as another aspect of your mythical “Gilded Age” GOP policies.

    The Democrats should eliminate the AMT — and its elimination should be offset by reductions in government spending. Let’s see the Democrats come up with $1 trillion in spending cuts over the next 10 years. If they do that, I’ll personally thank Rep. Pelosi for doing a good job.

  7. Nicq MacDonald says:

    Jay:

    It’s not unthinkable. $100 billion a year isn’t that much in the scheme of the federal budget. Hell, leaving Iraq will free up twice that amount…

    Anyway, what ever happened to the logic that tax cuts = increased revenues? Does it no longer apply?

  8. Mark says:

    I have long supported lowering the income threshold from which the alternative minimum tax takes effect. The subject has never come up on this board (apparently because the only tax cuts you care about are those that directly affect the rich), so you are in no position to speculate on how I would respond to the issue if it were Republicans who proposed cutting the AMT.

    But that’s just it, see. Republicans DIDN’T propose cutting the AMT. They were silent on the topic for years. Now, they’ll continue to be silent on the issue as they are the minority party lost in the political wilderness for the foreseeable future.

  9. Jay Reding says:

    Anyway, what ever happened to the logic that tax cuts = increased revenues? Does it no longer apply?

    Not all tax cuts increase revenue. Bush’s first $300 tax credit didn’t have much of an economic effect. The general rule is that a tax cut that stimulates investment will have an economic effect.

    Cutting the AMT isn’t at all a bad idea, but the Democrats can’t spin their way out of the fact that it’s as much of a tax cut “for the rich” as anything else they’ve spent years badmouthing.

  10. Seth says:

    I don’t think Democrats have ever been pro-AMT the way it is now. Plus, this gives Dems in conservative-leaning districts cover when we repeal the Bush tax cuts to the rich and places the President over the barrel when he defends them. Gonna be a long two years for you righties.

  11. Jay Reding says:

    Plus, this gives Dems in conservative-leaning districts cover when we repeal the Bush tax cuts to the rich and places the President over the barrel when he defends them.

    No, it doesn’t. The AMT is mainly paid by people living in blue-state urban areas. The Democrats would be forced to defend a position in which they’re for cutting taxes for the denizens of Beverly Hills while raising them for the people who work for a living,

    Gonna be a long two years for you righties.

    I know! With such a target-rich environment, where does one start?

  12. Nicq MacDonald says:

    “No, it doesn’t. The AMT is mainly paid by people living in blue-state urban areas. The Democrats would be forced to defend a position in which they’re for cutting taxes for the denizens of Beverly Hills while raising them for the people who work for a living.”

    Again with the “culture war” idiocy- I have a feeling that most of the people living in those blue-state cities to whom the AMT would apply are people who work for a living… people generally don’t make six-figure incomes for doing nothing. And if they do, could they please tell me how? :)

  13. Jay Reding says:

    Again with the “culture war” idiocy- I have a feeling that most of the people living in those blue-state cities to whom the AMT would apply are people who work for a living… people generally don’t make six-figure incomes for doing nothing. And if they do, could they please tell me how? :)

    If I only knew… :)

    It’s less about the “culture war” and more about good-old class resentment. For someone living in a place like Sioux Falls or outstate Minnesota, even $100,000 is pretty damn rich. Granted, in NYC, it’s damn near lower middle class. However, when you have a nation in which the average income is in the $40,000 range, a tax cut that only hits those making six-figure incomes is hardly in accord with making the “wealthy” pay “their fair share.”

    Policy-wise, it’s not a bad idea. Politically, the Democrats look like hypocrites, and to a large extend they are.

  14. zzx375 says:

    Wealthy, middle-class, poor all terms that are ill-defined or not at all which is probably why they figure so prominently in political rhetoric. The middle-class of one is the fat-cat of another.

    Elminating the AMT is fine. What will take its place?

  15. Seth says:

    Jay–
    Perhaps I should give you an example in your own back yard. Rochester, Minnesota. Conservative-leaning district, many people making more than $100,000.

    Foley’s seat. CA-11. FL-22. The conservative CT seat. New York pickups. PA suburbs. Let me know if you’d like me to keep going.

    It also goes right at the heart of the hysterical GOP fearmongering. “Those tax and spend liberals are going to raise your taxes!” Well, it turns out they aren’t. It turns out they’re going to make taxes more fair. That means reforming the AMT and repealing Bush’s welfare program for Paris Hilton.