Tuesday, November 08, 2005

AMT--How Soon We Forget

The Alternative Minimum Tax is an orphan these days, no friends at all. Allan Sloan in the Post is just the latest:
A Right and Wrong Way to Kill the AMT: "The hideously complex AMT was added to the tax code in 1969 to stop a few rich people from avoiding taxes entirely. But this year, it will afflict 3.6 million families, according to the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution. Next year, 18.9 million. In 2010, 30.9 million. That's not a handful of tax dodgers; it's the masses. "
But there was a reason for the AMT, based in bureaucratic facts. The truth is that no single scheme (nod to Brits) can enmesh reality. The mind of man the rulemaker cannot encompass all possibilities, so there are ways ("loopholes") to get around every tax law. Because there are, the rich have long evaded taxes. After all, they have every incentive to act "rationally" in an economic sense, to become "freeloaders". Every tax dollar they save is a net gain. All this leads to the situation where very rich people, wealthy either in terms of income or of assets, pay no taxes. A democratic country considers that to be wrong, particularly in a time when people are dying to protect the rich. (Isn't that what our troops are doing in Iraq--dying to benefit us, including the rich?) Hence the AMT in 1986. Hence the idea of doing away with the AMT strikes me as base and immoral.

Let me offer a counter suggestion: Many discussions of the AMT point out that it was never "indexed" for rising levels of income, which brings more and more people within its scope as time goes by. Given that fact, we could "fix" AMT by retroactive indexing--jigger its parameters to gradually reduce its scope over the next 10 years until it gets back to where it was in 1990. That would solve the "freeloader" problem. It would leave the Bush problem in plain view; the Bush problem being his erosion of the tax structure to the point where it doesn't support the government, certainly not Sen. Stevens' "Bridge to Nowhere".

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