Thursday, October 11, 2007

Paul Ryan's right: Alternative Minimum Tax needs reform

Congressman Paul Ryan is right when he says the Alternative Minimum Tax is an increasing burden on working Americans.

Ryan is among a group of conservatives in the House pushing for a ten-year phase out of the AMT which subjects middle-income taxpayers to exorbitant tax rates while phasing out their itemized deductions.

Whether a phase out is the best idea remains to be seen. Perhaps it would be best to get the AMT back where it was intended to be: a device to keep the wealthy from evading all tax liability.

The problem is that the 40-year-old AMT hasn't been adjusted to keep up with inflation so, rather than targeting the rich, it takes dead aim on working couples and entrepreneurs. And it's appalling that liberals aren't flocking in droves to do something about it.

Let's put it in real terms.

Say two teachers are at or near the top of their pay scales and make $150,000 a year between their salaries, mutual funds, etc. (While $75,000 a year may seem like a lot to someone working at Wendy's, it's pretty modest by high income standards.)

You don't really live that high on the hog at $150,000 a year -- yes, you're not on the poverty line but what happens is that middle income taxpayers subsidize the poor and the rich. Plus there are other joys of just being middle-income such as kissing financial aid for your college bound kids goodbye. In many ways productive middle-income wager earners are becoming a new breed of working poor.

To illustrate, that $150,000 per couple in 1969 -- when the AMT took hold -- would be $825,000 in today's dollars. So maybe instead of dumping the AMT it should be automatically indexed for inflation.

So, if a couple of teachers could easily pop into AMT land, why aren't the liberals and their pals in the teacher unions working overtime to fix this mess? Good question.

And the response from elsewhere in Washington is likewise lukewarm. Cut out the AMT and you remove $840 billion a year in cold cash from the federal treasury.

Of course, if that money went back into the economy, think of the new jobs it could spin off. But somehow I think the folks who want the AMT as it is don't want to think about that. They just want to rip us off.

While I applaud Paul Ryan's enthusiasm on behalf of phasing out the AMT, I am a bit skeptical. Paul's come up with some good plans over the years but getting the rest of Congress to see things his way hasn't happened enough. We should hold Paul's feet to the fire on this one.


K. Carpenter said...

"Paul's come up with some good plans over the years but getting the rest of Congress to see things his way hasn't happened enough. We should hold Paul's feet to the fire on this one."

This statement does not make sense.

You want to hold Paul Ryan's feet to the fire, because the rest of Congress does not see things the way he does?

RAG said...

Not because Congress may not see things the way he does but rather to encourage him to push as hard as possible.

Dad29 said...

The reason that the union movement does not concern itself with $150K/year member-earners is simple.

The Left is only concerned with furthering the concentration of power in Gummint. This necessarily includes removal of disposable income...

The propaganda value of beating "the rich" is far more valuable than a small minority of union-member taxpayers.

Thus, the $150K/year couple in your example become "non-persons." They will not exist any more.