Editorial Tax Nonsense

In the second editorial today in the Sacramento Bee (called Tax Scammery) the lack of reform in the Alternative Minimum Tax is blamed on the "record Bush tax cuts of 2001." What nonsense! Does the Bee not remember where the AMT came from? It came from a democrat initiative in the 1969 tax act. You should remember that tax "reform" which was designed to catch errant millionaires who did not pay tax. The Assistant Tax Secretary at the time, Stanley Surrey, argued that without this parallel tax system that millionaires would pay no tax.

The problems with the AMT are huge. As it has gone unindexed over time the snare has extended lower and lower into the tax system. The compliance cost of the alternative system is also huge. But the Bush tax cuts are not the reason why the AMT is bad tax policy or even why it is still in the Internal Revenue Code.

Which of the "record tax cuts" would the Bee trade off for the elimination of the AMT? The modest reduction in rates? The reduction in capital gains rates? The elimination of the death tax? Each of those policies which were the core of the 2001 tax act have strong justification in making the tax system become less intrusive into our lives. Each of those changes, which were the base of the tax cuts, has sound justification in tax policy. The capital gains reductions help in capital formation. The rate reductions put us more in line with tax rates around the world - and seem to have had the effect of having the wealthiest taxpayers actually pay a slightly higher percentage of the tax burden. The death tax elimination ended the ability of the government to confiscate family businesses. (Although most observers suggest that some modification of the complete elimination would raise some revenue - and the last congress toyed with setting a high exclusion to raise some revnue.)

The real problem with the AMT is its narcotic like effects for people who want to increase spending. The Bee points out that the burdens of AMT are in the range of $70 billion and growing. The AMT affects more than 23 million taxpaying units. In a Brookings study of the issue if the Bush tax bill had not been enacted the AMT would now only affect 300-400,000 taxpayers. But did the Brookings look at the effects of raising rates on capital or the costs to family businesses for going back to the absurdly low exclusions for death taxes, or even for the negative effects of keeping the general rate tables above where they are today? In reality, the Bee wanted more to yammer about Bush than to think conscientiously about sound tax policy.