Ruth Marcus writes about "Bush's Stealth Tax Increase" in the February 7, 2007 Washington Post. Her first line is an attention-getter: "Even President Bush acknowledges that he can't balance the budget without raising taxes." She's bringing into the open the inconsistent, misleading and inherently hostile to middle-and-lower income taxpayers rhetoric of the FY 2008 budget about the AMT.
As noted in my earlier posting on the FY 2008 Budget proposal, it retains the AMT, providing just a one-year patch, yet again, in spite of Treasury Secretary Paulson's considered opinion that the AMT is "a cruel tax". The AMT could be repealed, but that is a huge budget hit that nobody really thinks can be done easily. The AMT can and should be reformed, as I and others have suggested, through a combination of higher exemption levels with preferences for capital gains and some adjustments to remove unnecessary differences between the AMT and the regular tax. That is a reasonable solution that retains the valuable aspects of the AMT (getting high-income taxpayers to pay a fairer share, including taxes on their capital gains that match the taxes that workers pay on their wages) while eliminating the unfair, burdensome and simply wrong-headed aspects of the AMT (a complicated system that increasingly reaches down into the ranks of ordinary taxpayers to subject them to an unnecessary surtax that takes away the only good aspect of the 2001-2006 revenue reduction bills--namely, a tax break for ordinary taxpayers). But the AMT simply cannot be left to continue floundering along with its heavy-handed hit against people just above the middle and its ability to dip down unexpectedly and capture more income from those right at the middle (in the $50,000 income range).
Of course, the unspoken truth of the Bush budget is that it only is able to achieve its purported balance (I say purported because I have strong doubts that the various necessary assumptions--including assumptions about growth, about continued record corporate tax revenues, and about the de-prioritizing of domestic expenditures in order to increase military spending by 23%--will actually be realized) by intentionally NOT fixing the AMT and having that extra $1 trillion of dollars available to use to hand the keys to the kingdom over to those who most benefit from the 2001-2006 tax cuts--the wealthy and owners of corporate capital.
As Ruth Marcus ably notes, "[i]f [Bush] means, as he says and nearly everyone agrees, to fix the AMT, that revenue has to come from somewhere [other than the working poor and the possible remedies for the tax gap left by non-compliance]."
That leaves the middle class, the better-off and corporations to divvy up the tab. In that context, does it really make sense to permanently repeal the estate tax? To leave in place lower tax rates for the richest Americans? To continue to tax capital gains and dividends at far lower rates than ordinary income? These are the choices that the Bush budget entails, even if it fails, deliberately, to spell them out.
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