Last Friday, the House passed H.R. 3996 216-193, the AMT patch bill that includes a number of other extenders and revenue offsets resulting in revenue neutrality to the tax cut for ordinary American taxpayers. The House report is available here. The White House has threatened a veto, and it looks like right now there would not be enough votes to override. What a shame that this Congress is still stuck in carrying out the Republicans' fantasy of a no-tax world (at least, a no-tax world for the rich).
Not surprisingly, Republicans objected, and Senate Republicans threaten to filibuster the bill unless it is passed without the revenue offsets. What are the revenue offsets? For example, one is the taxation of managers' "carried interest" as ordinary compensation income rather than preferential capital gains income. As the Democrats noted in their release on November 8 right before the House vote, there is broad public support for this change, which would remove an inequitable loophold for wealthy fund managers and tax them like everybody else is taxed on their compensation. So why are Senate Republicans willing to filibuster the bill and cause a delay that may well create confusion and cause ordinary Americans to lose out on the benefit of the one-year patch? I guess they'd rather the managers (Wall Street high-fliers with money to spare for campaign contributions) get treated preferentially and who cares about ordinary taxpayers. The Democrats paint it more starkly--as Republicans being willing to "bankrupt America" with "borrow and spend" policies rather than to vote for fiscally and equitably sound policies. See this Nov. 9 release.
As Rangel put it in a third release, the question is "whose side are you on?" You can support "responsible tax relief for millions of hardworking, middle-class American families" or preferential treatment that "protect[s] the special interests of a privileged few."
The Republicans have their own version of the news. Sam Johnson, Republican from Texas, calls the carried interest tax an "assault on free enterprise." See Jonathan Weisman's article in the Washington Post, House Passes Bill to Ease Alternative Minimum Tax, Nov. 10, 2007. That statement is outrageous in itself--as though correcting the inequity of taxation of carried interest would somehow cause the economy to go into a tailspin.
(Aside--we are already in a tailspin, with the credit crunch and the housing slump being what might have been expected, in part, from the way financial institutions have dominated our economy and the lack of any tough policies on environmental and other concerns over the last few years or on multinationals removing their assets (especially intangibles) to operate in other countries. Recession is almost surely in the cards; and depression--even a major depression--seems quite possible. The "growth" that this government has touted due to its tax cuts has been anemic at best, and certainly hasn't made up for the fact of the long-term impact of record deficits year after year.)
The Republicans put their case forward in this press release. They claim to be doing the math right, compared to Democrats' wishful thinking. But note the trick. They assume as the baseline a budget that already extends all the 2001-2006 tax breaks and makes them permanent. Then they compare to that a budget that doesn't, and conclude that's a tax hike. Now, in reality, the tax breaks, unless extended, will expire and so it's not accurate to call the taxes that result from the way the code is currently written a tax hike. Nor is it accurate to call a tax base that assumes the law is different from the way it actually is the "baseline"! That's wishful thinking, at the least, and distortion to misrepresent the facts, at the most realistic. So the Republicans' release is typical of the AMT gamesplaying that has been going on since the original 2001 - 2003 tax cuts. They knew then that the tax cuts designed by their party would provide a benefit primarily to those at the top of the income distribution, and they also knew that there would be an increasing clawback of the apparent tax cut benefit for people not at the top of the income distribution, directly because of the way the AMT works.
That's not the only way Republicans are misrepresenting the facts. Jim McCrery, ranking Republican on the House Ways and Means Committee, claims that the AMT was only intended to apply to wealthy Americans and so the budget shouldn't take the tax cost of "fixing" the AMT so that it doesn't apply to anybody else into account. See this New York Times article from November 10 by Edmund Andrews, House Backs Tax Relief but Fate in Senate Uncertain. That statement about the AMT is bunk, to put it mildly. Congress has tinkered with the AMT over the years so that it has long been a separate system intended to tax those who enjoy substantial benefits from the so-called AMT preferences. It hasn't been a tax just for the super-rich for quite a few decades. For the Republicans to now claim that it is (when in fact they kept it at the time they enacted their tax cuts for the rich because they knew it wasn't) is deceptive--they are not being honest with the American people. Finally, the mainstream press is beginning to acknowledge this, as in the case of the cited New York Times article which notes that the Bush Administration and Congress depended on the revenue streams from the increasingly broad-hitting AMT in claiming that the revenue reductions from their tax provisions were not anything to worry about.
Democrats in the Senate (and those few who voted with the Republicans in the House) need to get over their fear of upsetting contributors (see House Backs Tax Relief but Fate in Senate Uncertain, noting that Democrats are "torn between party instincts and alienating big contributos") and start voting their consciences. They would likely find a hugely appreciative electorate. If Senators like Chuck Schumer let their big contributors (like Blackstone) win the day, it will be a sad day for ordinary Americans. Taxing carried interest like any other compensation income is the right answer. Hopefully the managers' lobbying funds won't sway the votes.
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