Tax monster still on loose

Millions of taxpayers will be spared a massive tax increase when they file their returns in April if the Senate decision to once again rein in the monster that is the Alternative Minimum Tax (AMT) prevails in the House.

It has been reliably estimated that without the passage of what has come to be called the AMT “patch” — the tax that was passed back in 1969 by a populist Congress seeking a way to tax a handful of wealthy taxpayers who it was felt weren’t paying their “fair share” — will cost an additional 21 million middle-class American families something like an additional $2,000 a year.

The problem with the AMT stems from Congress’s failure to “index” it back when it was originally passed. As a result, it takes more and more every year from more and more taxpayers, and is getting ready to take a huge bite that will enrage millions of Americans and could have serious economic consequences.

However, Congress hasn’t been able to pass either a permanent fix or this year’s “patch” for two reasons. The first, the Democratic leadership’s fondness for higher and higher taxes on, well, just about everyone, is related to the second.

The new Democratic Congress adopted rules that require tax cuts to be offset by either spending cuts or tax increases in other areas.

This “pay as you go” rule sounds good, but works in practice to make tax cuts less likely regardless of equity or economic merit — and, when combined with the rules in effect for the “baseline” budgeting projections Congress refers to in deciding what tax increases or offsets might be required by the pay-go rules, lands one squarely in fantasy land.

This gets too complicated for most taxpayers to begin to understand, and many members of Congress must also be confused by the projection, for example, that the AMT patch preventing a massive tax increase would, in fact, be a tax cut that should be offset by other tax provisions designed to raise an equal amount of revenue.

This conclusion is reached for the simple reason that in drawing up its baseline projection, the Congressional Budget Office, or CBO, is required to assume that any tax cuts that require renewal will not, in fact, be renewed, but that any spending programs that might expire will be renewed and continue.

J.D. Foster of the Heritage Foundation has explained the perversity of all this and has suggested that once the current battle over the AMT patch is over, Congress ought to tell the CBO to get real when making future projections. He’s right, of course, but one wonders if anything based on reality rather than fantasy is likely to appeal to the current congressional leadership.

Indeed, the current way CBO calculates the baseline makes just about as much sense as anything else that happens in Washington and leads to the marginally insane position that House Democratic leaders are now taking on the AMT patch. You see, without the patch, taxes on those 21 million Americans would go up even though no one ever intended the AMT to apply to them and, with a few exceptions, no one really wants their taxes to go up.

However, under the rules that the Senate wisely decided to ignore, Democratic House leaders are taking the position that by voting to prevent a tax increase, they would, in fact, be voting on a tax cut and will therefore have to seek offsets to neutralize the estimated $51 billion the government won’t get unless those 21 million people are taxed.

The fact that the $51 billion is money that the government has never collected, that was never intended to be collected and that no one has thus far been required to pay bothers them not a whit.

Instead, they are demanding that the tax cut be “paid for” in the form of other taxes they’d like to impose to offset the loss of funds the government will lose by not imposing higher taxes on the middle class.

How House Majority Leader Steny Hoyer (D-Md.) and Speaker Nancy Pelosi (D-Calif.) will explain to those 21 million taxpayers about to be eaten by the AMT monster that the Democratic Congress has to impose new taxes on them because of the revenue the government would lose if it doesn’t will be interesting to watch.

Just think of all the money the government “loses” by not taking everything we have.

Keene, chairman of the American Conservative Union, can be reached at Keeneacu@aol.com