Rangel's AMT Riddle Continues

Rangel's AMT Riddle ContinuesC. Eugene Steuerle

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

The text below is an excerpt from the complete document. Read the full paper in PDF format.

In this article, C. Eugene Steuerle explores the political and budgetary pressures facing Charles Rangel, the House Ways and Means Committee Chairman, with regard to the Alternative Minimum Tax (AMT). He further analyzes various options to fix the AMT, the ramifications for Rangel, and the path taken.

Imagine you’re the chair of the most powerful committee in Congress, and you’re a (political) party type of guy. Thanks to something called the alternative minimum tax, a moderately hefty and accelerating tax increase is about to hit upper-middle-income and lower-upper- income taxpayers, but not very high-income taxpayers.

Now mix in some other budgetary and political problems. On the budget side, much of that revenue increase has already been earmarked to support increased spending. Of more than $300 billion of additional taxes due to be collected in 2010—some of which is attributable to this AMT juggernaut and some simply to hoped-for economic growth—well over half already has been tapped to pay for more healthcare, primarily for the elderly and near-elderly.

On the political side, you’ve got tough sledding as well. Your party has promised to be the party of fiscal prudence . . . that is, as long as it doesn’t bite too hard. Thus, it permits half-way measures, such as covering costs of changes only in a short budget window, leaving how to cover future costs unresolved. Your opponents aren’t willing to pay for anything at all.

Meanwhile, the blame game has started. Although there is plenty of blame to go around, The Wall Street Journal editorial page says the AMT mess is all due to the Democrats. Conveniently forgotten are (1) Republican tax cuts in 2001 through 2004 that deliberately counted on AMT revenues to reduce the net costs of other cuts and (2) the president’s own budget, which counts on the AMT revenues (which he says somehow he wants to keep without keeping the AMT). Your party, of course, wants to blame only the Republicans, despite the deliberate effort by the Clinton administration to retain most AMT revenues by raising the AMT tax rate when the regular tax rate was increased in 1993.

(End of excerpt. The entire paper is available in PDF format.)

View the original article here