It seems most everyone in Congress agrees that the Alternative Minimum Tax must be ‘corrected.’ Because the tax was not indexed for inflation when created in 1969, it will ensnare more than 20 million taxpayers in 2008. Congress never intended it to affect that many, and no one wants to pay the political price of not ‘fixing’ it. But while the AMT is almost certain to be addressed, you have to wonder–once again–why Congress is addressing it so late and so irresponsibly. An AMT fix was expected months ago, but Democrats refused to bring forth a proposal. Now the IRS has warned Congressional tax writers that legislation has to be enacted soon, so that they can do simple things like program computers, and print forms and instruction kits:
But rather than enact a fix, Congressional leaders have written back to Paulson, telling him–effectively–that the check is in the mail:
So Congress’ position is: we’ve not passed a bill to fix AMT, in fact, we don’t even have a proposal. Further, there’s a major disagreement among us on how to do this. But don’t worry–we can do it in less than two weeks. A major problem here is the House’s ‘pay-go’ rules–which require that all tax cuts be offset with spending cuts or other tax increases. For Democrats, one happy by-product of the rule will be the huge tax increase triggered by an AMT fix. That’s because while Congress never intended the AMT to grow to yield so much income–and never wanted that income–pay-go requires the House to make up for its loss. In this case, pay-go requires the Treasury to be made whole for money it never expected to collect, rather than keep whole the taxpayers who never expected to surrender it. So even though the federal government isn’t ‘losing’ a penny with an AMT fix, Chairman Rangel will ultimately try to push through a tax increase of more than a trillion dollars–to make up for the AMT. That’s a neat way to grow government. There is a bright side to this: since no one wants to raise taxes by a trillion before the 2008 election, Congress won’t repeal the AMT–just pass a one-year patch. And since the Senate won’t stand for a tax increase (Rangel complains that the Senators are ‘laughing at him’), the measure probably won’t be ‘paid for.’ Congress is likely to ignore pay-go. The only losers in the short term are the House Democrats who will be forced to vote for a $70 billion tax increase that will never become law. In the long-term, the losers will be the millions of American taxpayers who will be gouged to pay for a ‘tax cut’ that doesn’t exist.
