Alternative Tax Chumps

House Democrats are drafting a plan to provide tax relief for the upper middle class, the Washington Post reports. The Alternative Minimum Tax was created in 1969 to nab 155 super-rich tax filers who made more than $200,000 a year but were using loopholes and deductions to wipe out their tax bills. Because the exemption was not indexed for the inflation, which has reduced purchasing power by 500% in the past 38 years, the AMT's reach expanded. It caught 3% of households this year -- fewer than four million taxpayers.

The AMT is a flat tax with two brackets, 26% and 28%. There are virtually no deductions. Taxpayers compute their taxes under the regular rules with regular deductions, then do it again under the AMT and pay whichever amount is higher.

While the tax can hit individuals earning as little as $50,000 a year, it is more likely to hit families earning more than $100,000. The Urban Institute-Brookings Institution Tax Policy Center estimates that, if Congress does not fix the AMT, 90% of AMT revenue in 2010 will come from households with incomes above $100,000 (the highest-income 16% of all households).

Mind you, in the 2004 election, George W. Bush got 56% of voters earning $50,000 or more a year, while John Kerry got 55% of voters making less than $50,000. Bush got 58% of voters earning $100,000 or more. But Democrats are worried about these well-fed, if not fat, cats.

When Bush pushed through his tax cuts in 2001 and 2003, he and his GOP colleagues reduced rates on the highest-income Americans and eliminated the estate tax for multimillionaires, but they rejected Democratic proposals to fix the AMT. The Republicans put off AMT reform to mask the true costs of the 2001 and 2003 tax cuts, the Tax Policy Center reported. Ironically, those tax cuts pushed millions more taxpayers onto the AMT and more than doubled the amount of tax owed under the AMT.

The Tax Policy Center estimates that, if the 2001 and 2003 tax cuts had not been enacted, 16 million taxpayers would pay a total of about $43 billion in AMT in 2010. When the tax liability of upper middle class taxpayers was reduced under the regular income tax, it increased the number of households that will owe the AMT in 2010 to 32 million taxpayers who will pay a total of more than $100 billion in AMT. (See taxpolicycenter.org for more on this fascinating subject.)

Now that Democrats are back in charge of Congress, they propose to exempt families making less than $250,000 a year -- about 98% of taxpayers -- from the AMT. Those earning between $250,000 and about $500,000 would see lower AMT bills, the Post reported, citing anonymous sources.

To make up the lost revenue, families earning more than $500,000 a year would take a much harder hit from the AMT, as well as other adjustments to the tax code, the sources said. The Tax Policy Center suggests that the nation's wealthiest families -- less than 1% of all taxpayers -- would have to pay 5% to 13% more to offset the revenue lost by exempting the middle class from the AMT. Families who make more than $1 million would pay an extra $52,000, on average, each year.

Republicans dismiss the Democratic ideas as "class warfare." Rep. Paul D. Ryan (R-Wis.), senior Republican on the House Budget Committee, told the Post raising taxes for the wealthiest Americans would punish small-business owners. He dubbed the idea a "job killer."

Rep. Jim McCrery (R-La.), senior Republican on the House Ways and Means Committee, said the Democratic proposal would avoid a tax increase for some, but those people "won't see any more money in their pockets." Meanwhile, "the people who get the tax increase certainly would feel that," McCrery said. "So their proposal could be characterized as a tax increase, and a big one."

And you can bet that is the way the GOP will play it.

So Democrats will invite those headaches to help a bunch of ingrate Republicans.

Republicans have been pushing a flat tax for years. We think the Democrats should let this snake bite them next year. Then see whether the GOP wants to move back to a good ol' progressive tax.

If they really want to do the right thing this year, Democratic leaders need to make sure Ryan and McCrery and other loudmouth R's are co-sponsors. But Democrats also should attach the AMT repair bill to an omnibus that repeals the Bush tax cuts and earmarks the revenue to expand Medicare, so that the working stiffs will get a little help as well.


Gonzales in the Dock

George W. Bush may be the only one who was impressed with Attorney General Alberto Gonzales' testimony at the Senate Judiciary Committee, but he told reporters it "increased my confidence" in him. Never mind that the attorney general professed in more than 70 instances that he could not remember what happened.

Some accept this as the honest answer of a hapless figurehead who has a lot on his desk. We don't buy it. Gonzales is a Harvard Law graduate, former partner with the high-power Houston law firm of Vinson & Elkins, former Texas Supreme Court justice and former counsel to the president. He didn't get to the helm of the Justice Department by having a faulty memory. If anything, he is there because he knows too much and Bush doesn't dare cut him loose.

Republicans have been obsessed that minorities in Democratic strongholds are taking advantage of lax recordkeeping to stuff ballot boxes. With White House backing, they have been pushing states to purge their voter registration lists and pass voter ID laws to suppress the minority vote.

The Justice Department's Civil Rights Division is supposed to watch out for voting rights of minorities. Under the Voting Rights Act, Southern states and other states with a history of racial segregation cannot enact such laws without first getting clearance from the feds. But the Civil Rights Division has been gutted, with career lawyers saying they were pushed out to be replaced by newcomers with conservative credentials.

Bush might have the authority to fire US attorneys for whatever reason he or his advisers trump up. But neither he nor any other federal official has the right to lie to Congress. Joe Conason of Salon.com noted that Deputy Attorney General Paul McNulty, Assistant Attorney General William Moschella and former chief of staff Kyle Sampson, as well as Gonzales, have testified that the dismissed prosecutors were replaced due to unsatisfactory performance. They also testified that the decision to replace those prosecutors was not significantly influenced by White House officials. And they indicated in their testimony that neither the Justice Department nor the White House was seeking to replace those prosecutors without subjecting the new appointees to Senate confirmation.

Citizens for Responsibility and Ethics in Washington noted in a stinging letter sent by its director Melanie Sloan to Gonzales in March, an enormous volume of documentary evidence sharply contradicts the testimony delivered on various dates by him, McNulty, Moschella and Sampson (who have also contradicted each other). Everyone can't be telling the truth -- and anyone who didn't tell the truth to Congress under oath may be guilty of a felony. Moreover, anyone who tried to influence that testimony in an effort to conceal the truth may also be guilty of obstruction, conspiracy or both.

We agree with Conason, who wrote after hearing Gonzales' testimony: "The answer to Nixonian misconduct is no different now than it was during Watergate. Force the appointment of a special prosecutor and then put all of these public servants under oath in front of a grand jury." -- JMC

From The Progressive Populist, May 15, 2007

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