The tax increase Bush didn't...doesn't mention

[MarkB]

The item below was broadcast on CBS program Sunday Morning and is reported below by the New York Times.

I first heard about from a Detroit friend who thought he and his family were getting about a $2,000 income tax return and found out about this hidden tax "that they actually owe the feds $3,300." And he is a staunch Bush supporter ah...or was!

From the New York Times:



--------------------------------------------------------------------------------

April 10, 2005
ECONOMIC VIEW
A Tax Increase That Bush Didn't Mention
By EDMUND L. ANDREWS

ASHINGTON

CYNICS have long predicted that the Bush administration, plagued by budget deficits, will eventually start raising taxes. But now it is becoming clear how it would do so: the alternative minimum tax.

Baffling in its complexity and often bizarre in its impact, the alternative minimum tax is a giant undeclared tax increase that will ensnare tens of millions of moderate-income families in the next several years.

It was created in 1969 to prevent the very rich from using tax deductions to avoid paying a fair share of taxes. But when the deadline for filing income tax returns arrives on Friday, the alternative minimum tax will require 2.9 million families to pay an average of about $6,000 more than what they would owe under traditional calculations

That is just the start. If current law remains unchanged, the alternative minimum tax is expected to wring an extra $33.9 billion from 18 million households in 2006. In 2010, it will rake in an additional $100 billion, and by 2015 an extra $200 billion.

Make no mistake: no one says they want that to happen. But it is one thing to rein in or eliminate the tax itself, and an entirely different matter to give up the money that it would generate.

President Bush has promised to fix the alternative minimum tax as part a fundamental overhaul of the tax code, and he has ordered a bipartisan advisory panel to come up with recommendations by the end of July.

But in giving the panel its marching orders, White House officials made it clear that they are counting on the extra money regardless of what happens to the alternative tax. Under the president's instructions, the panel's recommendations on addressing the alternative minimum tax are supposed to be "revenue neutral," neither raising nor lowering taxes, and to assume that his income-tax cuts will be made permanent rather than expire in 2010, as required under current law.

Making those ordinary income-tax cuts permanent would reduce the amount of available revenue by about $1.8 trillion over 10 years. But White House officials told the panel that any change to reduce or eliminate the alternative minimum tax would have to be offset by higher taxes someplace else.

"My understanding is that any reform in the A.M.T. that loses money would have to be made up with offsetting revenue," said Elizabeth Garrett, a panel member and a professor of law at the University of Southern California.

Jeffrey F. Kupfer, executive director of the tax panel and a former Treasury official, confirmed that interpretation. "Our mandate is to be revenue-neutral, and we are interpreting that with respect to the president's policy baseline, which does not include a permanent fix to the A.M.T.," he said in an interview last week.

Tax experts have long complained that the alternative minimum tax is a "stealth tax increase," one that Congress never intended and that is likely to catch millions of taxpayers by surprise. But a tax increase through tax reform could be even stealthier. If the alternative tax is reduced, the offsetting revenue increases are likely to be buried in so many other changes that most people would never know what hit them.

Seen or unseen, the looming tax increases are almost as large as the president's tax cuts. Leonard E. Burman, a senior fellow at the Urban Institute, estimated that the government would have to raise ordinary income tax rates substantially in every bracket to offset the money lost in each bracket by the elimination of the alternative minimum tax. People in today's 28 percent bracket, for example, would have to pay a top rate of 35 percent. Those who now pay a top rate of 33 percent would pay 41.4 percent.

"The A.M.T. is a huge tax increase built into current law," Mr. Burman said. "What the current law assumes is that over time we move to a tax that is much less progressive, that has atrocious marriage penalties and penalizes people with children who live in high-tax states."

Taylor Griffin, a spokesman for the Treasury Department, said the administration's goal was to prevent a hidden tax increase by replacing the alternative tax with something that was easier to understand and more predictable. "What we are trying to do is prevent a stealth tax that sneaks up on you," he said. "If we don't do something, millions of Americans will be facing unanticipated tax increases."

The alternative minimum tax is similar in some ways to a flat tax that blocks people from using most of the big deductions that reduce their taxable income under the normal rules. A married couple with a gross income of $100,000, for example, must first calculate its tax bill the traditional way, then again under the A.M.T. In the alternative calculation, the couple gets to exclude $58,000 from taxation, but it must also strip out all the personal exemptions and most itemized deductions.

The prohibited deductions include those for state and local taxes, medical expenses, employee business expenses and interest on home-equity loans. The A.M.T. would then apply a flat tax of 26 percent (28 percent for couples who earn more than $175,000). The couple must pay whichever is higher, the tax calculated under the traditional method or the one under the A.M.T.

The huge looming tax increase is caused by two things. The first is that the exclusion level for the alternative minimum tax is not adjusted for inflation, so the tax affects more people each year as nominal incomes go up. The second, paradoxically, stems from Mr. Bush's tax cuts of 2001 and 2003.

Those cuts reduced regular tax rates at all income levels but did not change the alternative minimum tax. At the same time, some of the cuts came in the form of expanded deductions - the child tax credit, child care tax credits and bigger exemptions for married couples - that are not allowed under the alternative formula.

The effect of making Mr. Bush's ordinary income tax cuts permanent would be significant. Mr. Burman, at the Urban Institute, estimated that the alternative minimum tax would generate about $69.2 billion in extra tax revenue in 2015 if the president's income tax cuts expired on schedule. But if the White House persuaded Congress to make the cuts permanent, the alternative minimum tax would raise a staggering $200.8 billion in that one year.

If the A.M.T. itself is pared back, how would that tax increase show up in practice? The possibilities are almost limitless, from higher tax rates for everybody to the abolition of popular tax deductions.

Administration officials are almost certain to insist that any tax reform result in lower tax rates and fewer deductions. Many Republicans long for a flat tax or a national sales tax, but that would mean abolishing or reducing sacred cows like the tax deduction for mortgage interest.

A potential trade-off, but a politically explosive one, would be to eliminate deductions for state and local taxes, which cost the Treasury about $40 billion a year and are a big reason that many people become subject to the alternative tax. But getting rid of those deductions would cause howls of protest in Democratic-leaning states like New York and California, which tend to have above-average tax burdens.

Thus far, the issues have been so tangled and vexing that both the White House and Congress have simply opted to block increases in the alternative minimum tax with one-year and two-year patches.

But that will become expensive. By about 2008, Mr. Burman estimates, the alternative minimum tax will generate so much money that it would be cheaper to abolish the regular income tax.


Yur blood boiling yet!

MarkB

[Random notes]

There's another thread around here in which people were searching for the definition of "scuttering sh*t".
I think you've found it.

The simple facts are:

1) this is the greatest country on the planet (for the moment, anyway) and it takes lots of money to keep it going.

2) Nobody wants to pay taxes and nobody wants services that serve them to be cut.

3) Politicians lie because if they didn't, we'd fire them and get ones that would.

Oversimplified? Yeah, sure, but basically correct.

I have always believed that the failure of democracy is that people will get the government they deserve.

Roger

[jGilder]

1) this is the greatest country on the planet (for the moment, anyway) and it takes lots of money to keep it going.

But if you're ridiculously wealthy you don't have to worry -- Bush's tax cuts favor you. He even emptied the treasury and gave most of it to the rich. Now he's spending money we don't have (and that he doesn't include in the budget) on illegal preemptive wars, and he sending poor and lower-class people over to fight and die in them. Yes, this is 'the greatest country on the planet' if you're really wealthy and a corporate CEO or something similar. The rest of us will be lied to and cheated out of our money to pay for the things that the rich will ultimately benefit from. The average Americans will watch as the infrastructures in this country are starved to finance Bush's so-called 'war on terror’ and provide tax breaks for the rich... and our environment will be ravaged beyond repair.

What about you Mr. Random... are you a corporate CEO? Are you extremely wealthy? Or are you just being fooled too?

[Flyingcursor]

I agree with both of you, but the minumum tax is a crock of crap because it is decieving. And Jgilder is right all across the board. However the minumum tax has been in place for a long time.
It really kills people who've won a lawsuit. After they pay the lawyers they don't have enough left to cover the minimum tax.

[missy]

....but jGilder wrote:

"on illegal preemptive wars, and he sending poor and lower-class people over to fight and die in them"

I keep reading over and over how it's the poor and lower class that are enlisting in the military, but that's doesn't gel with my personal experience this year. Can someone point me to some current, reliable links that show or don't show this?

Missy

[Flyingcursor]

....but jGilder wrote:

"on illegal preemptive wars, and he sending poor and lower-class people over to fight and die in them"

I keep reading over and over how it's the poor and lower class that are enlisting in the military, but that's doesn't gel with my personal experience this year. Can someone point me to some current, reliable links that show or don't show this?

Missy

People have been saying that in every war the US has ever fought.

[Random notes]

I just wanted to vent a little cynicism and get back to doing my bills and taxes, but as long as you asked, my financial situation might be considered ridiculous - just not ridiculously wealthy. As far as "the greatest country in the world", I'll admit that the debate is open. Let's save some time and let it go as "Ranked in the Top 5".

And, no I'm not being fooled - I didn't vote for Bush either time. I hade him pegged as a small minded, mean-spirited man from the beginning although I admit that I did not realize he was such a coward. (Before anyone gets too hot - I will suggest that if this discussion continues it ought to be brought over to the political thread where it will be unable to harm children and small animals)

My point is, he was elected (more or less) and then re-elected. I won't quibble about whether he stole the elections - IMHO, both of them were crooked - the point is that in a country with a thoughtful, aware and educated citizenry this inadequate, incompetent "C" student would have been laughed off the public stage long before he got a nomination from anything but a lunatic fringe party. (And if this wasn't posted on a public forum, I'd stop holding back and tell you what I REALLY think.)

I think it was Tip O'Neill who said that all politics is local. Most people will act in what they perceive is their own best short term interest. A great nation needs a leader with vision that goes beyond maintaining schools and executing criminals but the electorate has a hard time getting beyond that especially if getting beyond that means redistribution of (their) wealth.

And the wealthy have a special power - the power to convince other people to act against their own best interest and in favor of the wealthy. That is why we have people wailing in the streets and threatening federal judges over unborn fetuses and brain-dead living corpses while electing leaders who will poison their air and soil and water, cheat them out of health care and education, send them off to wars for oil companies, pick their pockets and make them ask for more.

Like I said, I'm doing bills and taxes today which usually puts me in a good mood - I don't know why I'm being so cranky.

Roger

[OnTheMoor]

I just wanted to vent a little cynicism and get back to doing my bills and taxes, but as long as you asked, my financial situation might be considered ridiculous - just not ridiculously wealthy. As far as "the greatest country in the world", I'll admit that the debate is open. Let's save some time and let it go as "Ranked in the Top 5".

Roger

8th actually, http://en.wikipedia.org/wiki/UN_Human_D ... _countries

[Darwin]

....but jGilder wrote:

"on illegal preemptive wars, and he sending poor and lower-class people over to fight and die in them"

I keep reading over and over how it's the poor and lower class that are enlisting in the military, but that's doesn't gel with my personal experience this year. Can someone point me to some current, reliable links that show or don't show this?

Missy

People have been saying that in every war the US has ever fought.

And there's always been some truth in it, but things were probably worse when there was a draft, but there were exemptions for college students, who undoubtedly weren't the poorest folks in the country.

As for the volunteer Army, no one is forced to join up. Men and women presumably make that decision based on their own kind of cost-benefit analysis. It's always been a gamble. Unless things are so bad that there are truly no other options, it's hard to sympathise.

By the way, a lot of reservists are not particularly poor. Most seem to have normal jobs. Where they got caught this time was that many simply assumed that they would never be called up, thinking that they were just making pretty good money to go on a camping trip each summer. My son heard some reservist on TV saying something like: "I didn't join the Army to go to war." As Gomer Pyle used to say, "Surprise, surprise, surprise!"

(I enlisted when there was still a draft, and got to experience the switch to the all-volunteer system. From my experience, on average, volunteers produce a much better military. For my money, a draft is involuntary servitude, and I've never understood why it's not considered unconstitutional. Why can we draft people to go out and get shot, but not to, say, build highways and hospitals?)

Having said that, I still can't find any real justification for this particular war, and the government shouldn't be sending troops out to die just because they can. I'm not against turning Iraq into a democracy, but it was done by misleading the country, and it was carried out in a rushed way that led to many more casualties than were necessary.

And, I still say that if we just want to bring democracy to oppressed countries, we should have started with Myanmar. The military dictatorship there murders and tortures, they don't seem to have any friends at all, and they probably have a much smaller number of whackos who would engage in suicide bombings to save or restore the regime, compared to Iraq. By starting with several small, weak countries, we could have increased our credibilty at a relatively low price, making our success with tougher countries a tad easier.

Perhaps we'd be a more plausible savior if we hadn't supported so many despotic regimes over the past several decades.

I really don't mind us whipping the rest of the world into shape. I just think we should try to be less stupid in our approach. Based on what's gone on so far, I have zero confidence that our current administration is likely to become less stupid anytime soon.

[Random notes]

8th actually, http://en.wikipedia.org/wiki/UN_Human_D ... _countries

You know, I almost wrote Top 10, but I was afraid of a copyright infringement lawsuit from David Letterman. :roll:

You just want people to link over there to see that Canada rates 4th.

Showoff.

Roger

[jGilder]

And the wealthy have a special power - the power to convince other people to act against their own best interest and in favor of the wealthy. That is why we have people wailing in the streets and threatening federal judges over unborn fetuses and brain-dead living corpses while electing leaders who will poison their air and soil and water, cheat them out of health care and education, send them off to wars for oil companies, pick their pockets and make them ask for more.

Well said. I one paragraph you've stated just about everything I've been trying to explain in the last 175 posts.

[IRTradRU?]

a) The AMT has been around since 1969, as mentioned.
b) More people are paying into the IRS/(the "fed") due to increases in wages since 1969. That it's happening even more since 1969 should come as a surprise to anyone who's been living in another galaxy.
c) The President - any President - since 1969 can talk all they want about "fixing" the AMT, but it's up to Congress to do the fixing. Until Congress tackles this BEE-ESS tax scheme, it'll always be around.
d) The best fix for the regressive tax schemes that we have in the USA is to put in place a flat tax - no deductions, no loopholes - everyone pays their share equally. Think it'll happen? Not in a million years. Why not? The politicians lose (our) money to spend, thereby losing power, thereby losing influence, thereby losing whatever relevance they have left.

[Random notes]

Um, IRTradRU?, you do realize that the AMT is a flat tax?

Unless I misunderstand (it's been known to happen) the AMT kicks in after a certain income and applies a straight 26% snatch. Basically, it makes the income tax system progressive to a point and flat thereafter. Perhaps I should be running for cover, but this might be the most fair aspect of the tax code (in principle). If it is properly arranged, then people on the lower rungs get a break and everyone else pays a flat rate. Sales tax and VAT's are regressive in that the wealthiest people spend a smaller proportion of their income on taxed items leaving the burden heaviest on those of us who spend pretty much every shekel just to get to the next paycheck.

Whatever solutions may be presented, tho', will not matter until the electorate decides that leaders should be men and women whose first concern is the welfare of the nation and not the immediate concerns of getting re-elected and laying up large piles of cash along the way.

This is a democracy - the government is our fault. My fear is that the system can go into a "death spiral" feedback loop. If the government acts to corrupt education or muzzle the press, then the sine qua non for a democracy, an informed electorate, will be nullified and the government can "safely" act only in its own self interest. I put "safely" in quotes (there, I did it again!) because short-sighted self interest acts at the expense of long term considerations and the system will eventually fail.

Although I seem to be arguing for some sort of technocracy, I have trouble imagining any sort of government that cannot decay into a self-interested beauracracy without the mediation of democracy.

But I have to get back to supporting (financially, at least) the current system while not thinking about what that really means lest I get upset.

Roger

[spittin_in_the_wind]

For what it's worth, the reason that this is a problem is that alt min has not been adjusted for inflation. Therefore, as the years go by, more and more people get pushed into alt. min. In fact, according to The National Federation of Independent Business (NFIB):

Households with income of less than $100,000 will account for 52 percent of AMT taxpayers in 2010, up from 9 percent today. They will account for 23 percent of AMT revenue, compared with just 5 percent in 2003. In 2010, the tax will affect 37 percent of households with income between $50,000 and $75,000 and 73 percent of households with income between $75,000 and $100,000 (compared to about 1 percent for each group in 2002). (The AMT: Projections and Problems, by Leonard Burman, William Gale and Jeff Rohaly, July 7, 2003.)

This is not a rich person's tax. Any middle class household with two incomes could potentially fall into this tax, particularly those who pay state income taxes. It is effectively pushing the tax burden onto people who already pay more tax, and have higher expenses, such as child care.

Robin

[jGilder]

Perhaps we'd be a more plausible savior if we hadn't supported so many despotic regimes over the past several decades.

You can add to this that we overthrew democracies to install many of these "despotic regimes" that we support

I really don't mind us whipping the rest of the world into shape. I just think we should try to be less stupid in our approach. Based on what's gone on so far, I have zero confidence that our current administration is likely to become less stupid anytime soon.

First of all, the US would be very pompous and arrogant to believe that its role is to “whip the rest of the world into shape.” The rest of the world should be free to have whatever kind of government they choose – it’s not up to the US.

Secondly, I don't know if I'd say the current Administration is "stupid" really… foolish maybe, but not stupid. The gang that makes up the Bush Administration's cabinet was known as the "crazies" during Bush Sr.'s time. And when they came up with the PNAC and RAD (that I posted on the sticky political thread) it confirmed they were “crazy” in many people's eyes, including some Republicans even.

One interesting quote is what Bush Sr. said about invading Iraq and taking out Saddam.

"Trying to eliminate Saddam...would have incurred incalculable human and political costs. Apprehending him was probably impossible.... We would have been forced to occupy Baghdad and, in effect, rule Iraq.... there was no viable "exit strategy" we could see, violating another of our principles. Furthermore, we had been self-consciously trying to set a pattern for handling aggression in the post-Cold War world. Going in and occupying Iraq, thus unilaterally exceeding the United Nations' mandate, would have destroyed the precedent of international response to aggression that we hoped to establish. Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land."— George Bush Sr., A World Transformed

If only Bush Sr.’s son would have listened to his dad instead of the “crazies.”