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Jewish World Review August 15, 2005 /10 Av, 5765 AMT repeal would hurt red states By Peter A. Brown
http://www.JewishWorldReview.com |
Those of us who live in what the politicians in Washington, D.C., call the red states ought to think twice when we hear them talk of repealing the Alternative Minimum Tax.
That's because those folks want to put one over on us by repealing a levy we in the red states pay less frequently, with the likelihood of replacing it with one that would cost us more.
This bizarre reality stems from the AMT being the only tax that discriminates based on geography among those with similar incomes.
There's also a political twist. Republicans generally want to cut taxes, while Democrats are more skeptical because they want more government spending.
But on this one, the situation is much more complex because of how the tax falls.
Every state that voted for President Bush in 2004 would be net losers if the AMT is repealed and another sales or income-based tax were created to capture that revenue. Those in most states that voted for John Kerry would be net gainers.
That's why when you hear the politicians in D.C. talking about making the tax system more fair, make sure you ask them: Fairer for whom?
Think of the AMT as an alternative, and higher, federal income tax. It has different rules for deductions and credits than the one most of us live under. The deduction for a state income tax makes the most difference in creating this geographically uneven playing field.
Those who pay the AMT can't write off state income or sales taxes, as other filers can. In addition, there are a series of other deductions and exemptions — disproportionately enjoyed by those who live in the blue states — that are available to most taxpayers that do not count for those paying the AMT.
States that voted for Bush are much less likely to be hit by the levy because those are the same states where the politicians in power (mostly Republican) have created a system of either minimal or no income taxes. In addition, those states, because of living costs, tend to have lower salaries for jobs that pay more elsewhere.
A commission appointed by Bush to recommend changes in the federal tax system wants to eliminate the AMT. It has not suggested how to replace the $1.2 trillion it is projected to bring the U.S. Treasury during the next decade.
But given a federal deficit of more than $300 billion and forecasts that it could grow in the "out" years, it seems highly likely another levy would need to be put in the AMT's place.
The AMT was passed by a Democratic Congress in 1969 to deal with public unhappiness that 155 people with incomes of $200,000 — about $1.2 million in today's dollars — paid no federal income taxes.
The Democrats figured it would hurt only rich people, who they assumed were synonymous with Republicans.
But they forgot about inflation, and did not foresee the emergence of tax-averse Sun Belt and Rocky Mountain regions where citizens would pay much lower state taxes than in the then-thriving and populous Northeast and Midwest.
In the interim, the AMT has grown out of control and has become a parallel tax system that has been hitting about 2.4 million members of the upper-middle class, especially in what are now Democratic states.
However, unless Congress extends its 2001 temporary fix, the AMT is projected to nail 20 million taxpayers next year, possibly 75 percent of those with incomes of $100,000 to $200,000 but with a geographically tilted distribution.
Because of the way the tax works, those in the remaining Democratic bastions are much more likely to pay it.
That's because taxpayers with high incomes in states such as Florida have no income taxes to deduct. That means a Floridian or Texan who earns $300,000 — or, for that matter, $10 million — pays no state levy on that money. Their counterparts in California or New Jersey pay about $27,000 in state income taxes.
Under the regular tax system, those in states such as California and New Jersey can deduct that amount when they file with the IRS, and therefore have their taxes reduced proportionately. But that deduction is not available to those who are caught by the AMT.
This issue boils down to the philosophical question of whether the relatively wealthy who choose to live where fiscal discipline is more a part of the political culture should subsidize their counterparts in states where it is not.
Seen that way, the AMT doesn't seem all that bad.
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Peter A. Brown is an editorial page columnist for the Orlando Sentinel. Comment by clicking here. © 2005, Knight Ridder/Tribune Information Services |
Mitch Albom | |||||||||||
