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Massachusetts Liberal

Observations on politics, the media and life in Massachusetts and beyond from the left side of the road.

Saturday, November 11, 2006

Fixing the Blue State Tax

An encouraging sign from new congressional leaders -- talk of tax reform with a twist that helps those who helped to elect them.

The alternative minimum tax was designed to capture those who paid nothing to the IRS. Instead, thanks to 12 years of Republican congressional rule it has snagged an increasing number of couples with children earning $100,000 to $500,000 who pay high state and local taxes.
In simple terms, the AMT is sort of a flat tax with two brackets, 26 and 28 percent, and fewer deductions. Credits for dependents, medical expenses, and state and local taxes are all disallowed. Instead, taxpayers get a single big deduction, called the AMT exemption, which is set this year at $62,550 for married couples and $42,500 for singles. Taxpayers must compute their taxes both ways and pay whichever is higher.
In effect a Blue State tax because of the higher costs for medical care, higher property costs and values and the greater willingness to accept a state and local income tax to pay for services.

And while the $100,000 to $500,000 range seems like it encompasses the rich, those are moderate to good incomes for two-earner couples living along the coasts where the cost of living is also higher. Like Massachusetts.

In today's America, it encompasses at least some of the elusive "middle class." And it will get worse, according the Tax Policy Center
"The AMT will become the de facto tax system for filers in the $200,000 to $500,000 income range, 94 percent of whom will face the tax. About half of tax filers making $75,000 to $100,000 will have to pay the tax, including 89 percent of married couples in that income bracket who have at least two children."
Both Republicans and Democrats have paid lip service to changes, but there's been no action. Why? Because in the words of George Bush, "it's hard." And because fixing it would likely have a greater impact on those who have benefited from the Bush tax cuts.

The longer the AMT has remained in place, the greater the dollars it has taken in. Estimates say it would take $1 trillion over the next decade to get rid of the tax and bring about greater equity. And equity has never been the goal of the GOP congress.

Here's an interesting exchange between Barney Frank and Ann Coulter (now she's a tax expert too?) on the nature of tax policy over the past decade.

That "debate" symbolizes the risks in taking on the issue. Demagogues like Coulter will rail that the Democratic Congress is going to embark upon a tax-raising spree, ignoring the fact that the effort is part of an effort to reduce the AMT burden and bring greater tax fairness to the middle class.

In the simplistic world of television talking heads, the AMT burden is a lot harder to explain in sound bites than the fact that tax brackets will likely need to be adjusted -- and some people will wind up paying more.

Those people are the same ones who have benefited from the GOP cuts that -- along with Iraq war spending -- has looted the federal treasury. But Ann Coulter, Larry Kudlow and the GOP media warriors aren't going to let you know that.

2 Comments:

Anonymous Rhymes With Right said...

The AMT is a Democrat creation. Its repeal/reform has been blocked time and again by Democrats -- most recently when the GOP agreed to it as part of a package that would extend the tax cuts that Dems complain are denied to AMT payers AND are bad for America.

Now the Donkey Party wants to forgo $1 trillion over ten years to reward taxpayers in Democrat-voting areas of the country. Seems pretty clear to me that Democrat fiscal irresponsiblility willb e the order of the day for the next two years.

November 11, 2006 10:11 AM  
Blogger Outraged Liberal said...

As usual, those on the right chose to tell only that part of the story that fits their needs. Yes, AMT's origins came during Lyndon Johnson's time and Jimmy Carter had a role too. But check out http://hnn.us/articles/11819.html and see the role played by people named Nixon, Reagan and Dole. In every case, the goal was to make sure in the tax categories who have overwhelmingly benefited from the Bush tax cuts pay their fair share. I thought elephants never forget?

November 12, 2006 9:40 AM  

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