Recently, liberal columnist Michael Kinsley chose an alternative
route to attack the 2001 tax cuts…literally. In a Washington
Post piece, he posed as provocative by using the
least-loved of taxes, the alternative minimum tax, to lobby for a
tax increase. In his desperate search for a tax increase, he
managed to overlook facts about the alternative minimum tax, the
2001 tax cuts, and who shoulders the income tax burden
currently.
The alternative minimum tax is just what its name states: a
separate tax system designed to make all eligible taxpayers pay
some amount of income tax. A truly alternative system, it was
designed with separate tax rates, exemptions, credits, and its own
broader definition of income. It also had little foresight, because
it did not take into account inflation’s effect. Its 2006 exemption
for married couples was just $45,000 — only slightly more than the
$40,000 level of 1982, when the AMT as it now stands came into
being.
That $45,000 is a far cry from the “affluent people” Kinsley
admits the AMT was designed to affect. For that reason more and
more people are discovering this alternative tax system. Its effect
has grown from the few hundred intended targets in 1969, to a few
thousand, to roughly four million people in 2005, and will grow to
over 50 million in 2015.
Such is the strange creation Kinsley professes to endorse. In
order to do so, he seeks to transform its warts into beauty
marks.
First, Kinsley describes the process of calculating the AMT as
“fairly simple.” He includes a quote from the Congressional Budget
Office that appears to support his assertion, only acknowledging in
passing that “for others…CBO acknowledges that ‘the process is
more complicated.’” The report by the President’s Advisory Panel on
Federal Tax Reform, a bipartisan group tasked in 2005 with taking a
serious look at tax reform, had a very different description for
its complexity. “Millions of taxpayers must now fill out a 12-line
worksheet, read 8 pages of instructions, and complete a 55-line
form to determine whether they must pay the AMT…Not
surprisingly…75 percent of AMT taxpayers hire a professional to
do their returns for them.” Simplicity itself.
Second, Kinsley dismisses those who would simply repeal the AMT.
His desired course is to be paid for the revenue the AMT would
otherwise collect. Of course, Kinsley is arguing from the
standpoint of baseline budgeting, which makes sense only to those
whose lives revolve around the Beltway, but makes none whatsoever
to those who happily don’t orbit D.C. The AMT’s unintended effect
has been blocked over the last decade by a series of so-called
“patches,” which increase the exemption level and allow individuals
to make full use of certain personal credits. The President’s
Budget this year again includes just such a “patch” (in direct
contradiction to Kinsley’s assertion that “all the budgets of his
presidency have assumed — and spent — the money the AMT raised”)
which would take the exemption level for married couples up to
$63,350 (instead of its $45,000 statutory level) and allows full
use of certain personal tax credits.
Thus we have in actuality an unintended and uncollected tax for
which Kinsley wants compensation. And for the record, despite the
extension of “the patch” legislation, which has vastly restricted
the AMT’s impact, the federal budget deficit was 1.9 percent of GDP
last fiscal year and 1.2 percent this fiscal year — both in the
words of CBO “smaller than the average deficit of 2.3 percent of
GDP recorded since 1966.”
However, these inaccuracies are relatively minor when compared
to Kinsley’s whopper on its income class impact. “Although it no
longer strikes only the very tippy-top incomes, it is still fairly
progressive. Even in 2010, when the AMT will hit 20 percent of
taxpayers if it isn’t changed, more than half of AMT revenue will
come from taxpayers reporting incomes of over $200,000.”
That is pretty progressive…until we look at the distribution
of income taxes paid under the current tax system. Again we can
turn to the report of the President’s Advisory Panel on Federal Tax
Reform. Its distributional analysis of the regular income tax
burden, using 2006 income estimates, shows those making $200,000 or
more pay 53.5 percent of the income taxes now. Thus they are
already paying at least the share Kinsley deems “pretty
progressive” four years ahead of Kinsley’s 2010 date. By 2010, with
the combined effects of inflation and economic growth — the very
bane of the AMT, those currently making $200,000 will be making
substantially more, which means the AMT’s 2010 impact shifts down
the income scale.
The current tax system’s progressivity is a reality that Kinsley
must avoid because recognizing it would mean also recognizing a
fact that eviscerates his implicit purpose: the 2001 tax cuts made
the tax code more progressive. According to Treasury analysis, the
top 10 percent of income taxpayers in 2006 would pay 65.7 percent
of the taxes with the 2001 tax cuts in place, compared to 63.6
percent without them.
This is something that Kinsley could not accept. His article
juxtaposes the original AMT, which he says was “invented in 1969 as
a way to collect at least something from affluent people” with the
2001 tax cut, which he describes as “Bush’s tax cut for the
affluent.” What he imagines as justice would be to let the AMT
mastiff off its leash to righteously devour the “affluent.” The
problem is this is not where the AMT would bite.
Once more the Tax Reform Panel’s report gives us good guidance
as it explicitly addresses Kinsley’s proposal of letting the AMT
replace the regular tax. “Relative to the current system, many
middle-income taxpayers would face higher marginal tax rates, while
lower- and very high-income taxpayers would face lower marginal tax
rates.” Nor is this the only problem with the AMT — its stiff
marriage penalty and failure to account for family size in
determining exemption amounts, to name two more.
So focused is Kinsley in hitting the President’s tax cuts that
he ignores both the facts and the middle class. It is one thing to
love something warts and all, it is entirely another to love all
warts, like the AMT.
