April 09, 2007
Democrats and the AMT
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.
Given that Cowen seems reliably wrong about pretty much everything, I'm honestly curious as to why lefty blogs constantly link to him.
Is it a case of being able to use him as a strawman to make lefty cases, or is he occasionally correct about stuff?
Posted by: Petey | Apr 9, 2007 1:03:52 PM
Yes, I did read the whole article. On your first point, even if the revenue can be replaced by some other fiscal change, AMT limitation still involves an enormous revenue cost. The "make-up" revenue always could have gone somewhere else. On your second point, the Republicans can be blamed for many fiscal mistakes. And the Democrats aren't in an easy position vis-a-vis tax reform. But the correct response is still to say: "given the progressive view of the world, Democrats simply should not be doing this."
Posted by: Tyler Cowen | Apr 9, 2007 1:52:57 PM
Petey - Tyler is very much worth reading, it's just that you'll only see him linked by Matt Y. et al, on issues where he's arguably wrong.
Posted by: washerdreyer | Apr 9, 2007 1:58:41 PM
"But the correct response is still to say: "given the progressive view of the world, Democrats simply should not be doing this."
Well, sure, that's the "correct" response if you ignore the details of the Rahm Emanuel proposal.
Well, sure, that's the "correct" response if you have a cartoonish view of the progressive view of the world.
Y'know, Tyler, just because the GOP over the past 25 years has been willing to push ideology uber alles, don't assume the progressive view of the world is a precise mirror of that particular approach. Sometimes, ideology takes a back seat to making the government function in a sane and rational manner.
Posted by: Petey | Apr 9, 2007 2:05:39 PM
"Petey - Tyler is very much worth reading, it's just that you'll only see him linked by Matt Y. et al, on issues where he's arguably wrong."
Posted by: Petey | Apr 9, 2007 2:06:41 PM
"First, it's not costly in terms of revenue. As the article makes clear, the discussions now are how to actually replace AMT revenue."
Really? A year patch to the AMT is far more expensive than Estate tax collections, even not deducting enforcement costs! Over time, just the hold harmless provisions of the AMT is a very expensive tax cut option. $1 trillion over 10 is a huge, huge amt of money even for DC.
Again for comparison, the size of the 2003 tax cut is just over a third of the cost the ten year AMT fix.
I'm not sure how you can say that it's not costly in terms of revenue.
"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."
The majority of AMT payers are in Democratic districts due to incomes and high state/local taxes. Democrats have long-been advocates to bumping up the AMT. To pretend that this is solely a Republican led effort over the last several years is just wrong. Exempting your own taxpayers has long been a bipartisan effort. Democratic Members in California led the effort to fix the AMT which ensnared many folks in Silicon Valley who owed huge taxes on worthless stock options.
Posted by: Hederman | Apr 9, 2007 3:09:47 PM
Those people in Silocon Valley that got caught up in taxes was because they were dumbasses. They exercised their options causing a taxable event. They were responsible for the tax on the difference betweent the strike price and the market price. However, they didn't sell any of the stock.
They were greedy and were hoping it would continue to soar. So now they have a tax liability and their stock is exposed to market changes. Then the market takes a dive and their stock becomes worthless and yet they are stuck with the tax liability.
They were greedy. So greedy that they wouldn't sell off enough to pay the tax or even take out put options on enough stock to pay the tax.
Posted by: Fred Jones | Apr 9, 2007 3:53:21 PM
Fred: I'm not commenting on whether it's good or bad that the AMT ensnared those folks. Just that their Dem congressional delegation pushed heavily to help them and change AMT rules. Salon and others covered this.
I'm just pointing out that both parties have cooperated in changing AMT rules on a year by year basis. To solely accuse Republicans seems a bit unfair given the AMT's history.
Posted by: Hederman | Apr 9, 2007 4:21:17 PM
So Tyler, you think there's no possible way to rejigger the tax code that's morep rogressive than the AMT? That seems...odd.
Posted by: Ezra | Apr 9, 2007 4:45:43 PM
The whole idea of AMT is progressive. It was designed as a separate tax system to catch the rich who use lots of "preference items" such as municipal bonds, etc.
Poor people don't pay AMT. How much more progressive do you think our tax system should be??
Posted by: Fred Jones | Apr 9, 2007 5:10:24 PM
Posted by: judy | Sep 28, 2007 5:25:58 AM
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