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.