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Jewish World Review Nov. 10, 2005 / 8 Mar-Cheshvan, 5766 Ending AMT not worth tradeoff By Peter A. Brown
http://www.JewishWorldReview.com |
Ideas that are attractive on paper sometimes turn out not to be worth the risks in the real world. That's because the premise on which the proposals are based is badly flawed.
That's the case with the recommendations of the president's tax-reform panel. In its obsession to eliminate the alternative minimum tax, it has come up with some very questionable tradeoffs.
The suggested changes, if implemented as a unit, might well be good for the country.
After all, who doesn't favor a simpler, fairer tax system that provides the right incentives for economic growth? And the suggested changes, in isolation, might accomplish those ends.
As always, though, the devil is in the details. As Hillary Clinton found out a decade ago with health care, when reform starts from scratch, change brings very real risks.
The tax panel began its work with a predisposition to eliminate the AMT. To accomplish that goal, however, the panel had to find ways to raise the $1.2 trillion over the next decade that the AMT would bring the federal Treasury.
The key question is whether the tax panel's proposals to make up that shortfall are better for taxpayers and the economy than leaving the AMT, as onerous as it is to some, in place.
The simple truth is that even if the tax changes were to raise exactly the same amount of revenue that the AMT now does nationally — and don't blame me if I am skeptical that would occur — the panel's plan would hurt an awful lot of Americans.
These are middle-class people who have made their individual economic plans based on the current deductibility of their home mortgage, state and local taxes and health-insurance premiums.
First, let's acknowledge what few who are trying to eliminate the AMT want to admit: It might be the most progressive federal tax, because no one who isn't well above the median income range pays it.
It was designed almost 40 years ago to stop a couple of hundred very wealthy people from avoiding paying taxes.
Over time, because the AMT hasn't kept pace with inflation, it is now threatening to hit the upper-middle class, those with incomes in the $100,000-and-higher range.
It could affect 20 million Americans by 2006 if not eliminated or curbed, but its bite is not geographically fair. Mostly because of the differing size and existence of state income taxes, those in Northern and Pacific coast states are much more likely than residents of the Sunbelt to pay the levy.
Those 20 million may not be wealthy, but virtually every one of them has an income that is double the national average. These people are upper-middle class, and they have politicians' ears.
Now, in general, I believe anything that reduces the tax burden on anyone is good for the economy. After all, money not paid to the government goes into the more efficient private economy through consumption or investment.
But because eliminating the AMT would have to be paid for through raising other taxes or eliminating current deductions, I am skeptical about the wisdom of the tradeoff.
Let's be clear: The AMT does not currently, or in the near future, threaten the middle class who earn $40,000 to $60,000.
But some of the tradeoffs that the president's tax panel suggested, which I mentioned above, would do just that.
Others are just unworkable politically and possibly legally.
Why, for instance, should the federal tax code allow a resident of New York or Los Angeles almost double the allowable write-off for home mortgage interest than a resident of Syracuse or Saginaw?
In 1986, the last time Congress overhauled the tax system, it created serious economic problems for the country. It changed the rules on real-estate investment, which led to a real-estate crash in much of America. You might remember the savings-and-loan crisis that was the unintended result.
The comparison with Hillary Clinton's ill-fated attempt to overhaul health care is worth considering. She wanted to junk the entire system and start from scratch. Yet, when the details of her plan became clear, the status quo suddenly became much more attractive.
We still have problems with rising medical costs and the uninsured, but except in a few liberal hotbeds throughout the nation, there is no clamoring for government-run health care. The incremental approach to health-care reform has had some successes.
True, the tax panel's proposals do not represent the same level of change as Clinton's health plan would have, but these recommendations are still far reaching.
Americans need to think long and hard about such a comprehensive fix.
When you consider the alternatives to the alternative minimum tax, the AMT doesn't look quite so 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 |
Arnold Ahlert | |||||||||||
