Class Warfare in AMT Reform Hearings

For the benefit of non-US readers, AMT stands for alternative minimum tax. When individuals take itemized deductions, they must also run an AMT calculation to see if the taxes due under that framework are higher than they’d get using income – (deductions + exemptions). The idea behind AMT originally was that high income individuals who could arrange their affairs so as to pay little in taxes would still pay their fair share.

As inflation continues apace, incomes have crept up, but AMT thresholds have not been adjusted, so AMT is increasingly hitting middle class people with a lot of legitimate deductions (medical, mortgage interest, state and local income taxes) that it was never intended to affect. So AMT reform has become an popular topic in Congress,

Unfortunately, as Linda Beale discusses in, “The AMT Hearings in the House,” Republicans are nevertheless simultaneously trying to wave the reform banner, while characterizing the effort to redistribute the tax burden somewhat more towards those who have more ability to pay as “class warfare.” Huh? We’re not talking about confiscation of property, just progressive taxation. But even a once-noncontroversial idea like that is now being pilloried as if it were Communism (note that the new version of Communism is being anti growth or anti free markets). It’s yet another example of how rhetoric divorced from reality still gets a hearing.

From Beale:

Hearings last week in the House began to look for a lasting solution to the downward creep problem of the AMT, which could affect taxes for some households with income as low as $50,000 without some changes….

What I found interesting about the new discussion of the AMT problem is the Republican willingness to continue to play the blame game rather than deal with the real issues. Phil English (R-PA) pulled out the old line that Democrats are engaging in “class warfare” for wanting to assist those at the lower end of the income distribution at a potential cost of slightly higher taxes to those at the higher end and asserted that “We’re not going to allow our pro-growth tax policies that are expanding the economy to be held hostage to an AMT fix.” Id. Now, it seems to me that English is missing the point.

First, for the last six years the Republican-dominated Congress and Administration have passed a series of revenue reduction bills that have given the broadest benefits to people at the top of the income distribution while making a variety of arguments for eliminating “entitlements” that most clearly benefit those at the lower end of the income distribution. Those polices are the real class warfare, because the result is that the have-mores get more. Protecting the more vulnerable in the lower half of the income distribution by asking the more able to pay to bear more of the burden isn’t class warfare–it’s responsible and equitable tax policy.

Second, it’s not at all clear that the Bush tax cuts have been “pro-growth.” Just look at the concern, expressed broadly across the pages of the Wall Street Journal and the New York Times, about the likely impact of a continued housing slump on broader economic concerns….It is certainly not clear that whatever economic expansion the country has enjoyed has reached very far down the income distribution. Economic expansion for the rich accompanied by relative stagnation for everybody else is not a good situation if one cares about democratic institutions. An AMT fix for those on the lower end of the distribution is necessary for those ordinary taxpayers and may be absolutely vital to any continued economic growth in the US, given the importance of middle class consumption spending to the economy. One reason for today’s market slump is that investors are worried about the impact of mortgage defaults on retail spending and banks….

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