Not surprisingly, the White House has issued a Statement of Administrative Policy on HR 3996, the AMT patch legislation (available at this time on BNA at http://op.bna.com/dt.nsf/id/csaz-78rlj3).
The statement indicates that Bush advisers will recommend a veto of the bill for three reasons:
- An AMT Patch should not have raise taxes on anyone to pay for the relief for ordinary taxpayers
- The offsets--like the carried interest provision and the delay of the world-wide interest allocation change for multinationals--hurt the ability of US taxpayers to be competitive globally
- The bill repeals private debt collection for federal income taxes.
Will Congress cave to this pressure from an administration? Consider private debt collection for federal tax liabilities. The Bush administration has consistently favored privatization even where the activity is quintessentially governmental, such as collection of taxes, and even when it is shown, as it has been in the debt collection case, that the government can collect more money more cheaply and more accountably to the people than privatized collectors can.
And consider the "competitiveness" argument. This is one of those arguments that sound good on paper but don't have much to back them up. Sure, people like to pay lower taxes. But will managers of funds quit managing because of having to pay the same taxes on their compensation that the typical worker does? Doubtful. Will having taxes on equity funds mean all that activity will go overseas? Also doubtful. Other countries are considering how to tax those kinds of activities more equitably. Fund structures once established are not easily disrupted. And we could also make changes to our international tax provisions that more reasonably tax assets that are taken out of the country rather than encouraging companies to move overseas through our lax tax treatment of those transactions.
What about the interest allocation provision? That change should never have been enacted in the first place. For a multinational corporation, where it borrows is almost entirely elective, and money is, as we say, fungible, so that an interest deduction can be used to selectively reduce taxes. The provision doesn't eliminate double taxation--it more likely ensures inadequate taxation.
The White House wants its way. That way is too favorable to the wealthy and multinationals. It pushed huge tax breaks for wealthier Americans without footing the bill back in 2001 and 2003, knowing all the time that the AMT would be there to shore up the breaks with a back-door tax on the upper middle class.
Congress shouldn't go along. It should be thinking about ordinary taxpayers and the real needs of the country for tax revenues.