Saturday, December 8, 2007

AMT: It's Time For All The Tax Insanity To Stop

By Manifesto Joe

The latest skirmish is, as Yogi would say, just the latest. (It ain't over till it's over.) But the madness that has become the U.S. income tax system is coming front and center, and it's time to stop all this while there's still time.

The Alternative Minimum Tax, passed in 1969, was never indexed for inflation, and as a result now threatens to hit many millions more people. Senate Finance Committee Chairman Max Baucus, D-Mont., expressed misgivings about being one of 88 senators (5 against) who voted Thursday for a bill to block this effect for one year. He said, according to The Associated Press, that 12 million people in the $100,000 to $200,000 income level would be hit by the AMT without the fix, and "we need to stop that from happening."

Well, for starters -- poor, poor babies. It's such a sad-ass bitch to get by these days on $100,000 a year.

The problem on Capitol Hill is that there are Democrats in the House, some who refer to themselves as "Blue Dog" (more fiscally conservative) Democrats, who don't like the idea of passing something like this without some measure to make it deficit-neutral. You know, raising taxes elsewhere, or closing loopholes. It's a coalition of 47 Democrats who generally vote like moderate Republicans.

But in this case, the more liberal House leadership is solidly behind them. AP reports further that House Speaker Nancy Pelosi fully supports their opposition to this measure, which would add an estimated $50 billion to the federal deficit. The AP report continued:

House Majority Leader Steny Hoyer said Republicans "complain that we pay for this legislation by closing tax loopholes. Their solution? Just add the costs of the AMT fix ($50 billion) to the deficit and national debt. I absolutely reject this fiscally irresponsible approach."

Baucus was unintentionally eloquent, likening the unindexed AMT to the Frankenstein monster. "Unless we act, it will destroy the entire tax system," he said according to AP.

I've got news for Max -- it was already in shambles, a body pieced together from warmed-over remnants of the dead.

I won't go into a lot of statistics on the subject, but a crucial one appeared in the Barlett and Steele classic America: What Went Wrong? In 1959, corporations paid 39 percent of all U.S. federal income tax revenue. By 1989, that was down to 17 percent. I would have to check, but that percentage has likely decreased significantly since. The authors cited IRS stats as their source. And, I don't recall the U.S. being in any economic trouble in 1959.

Upper-middle-class people in America are the ones who now come under the gun from the bracket creep of the AMT, and they have actually been the biggest dupes of the 25-30 year assault on the American standard of living by the supply-siders. They have done well enough so as not to be too badly affected by the shift in the tax burden or the decimation of decent jobs. Now that they are in the crosshairs, their political clout is surfacing.

But maybe not for long. A complete overhaul is what's needed, in which the big corporations that used to pony up for a bigger share will be made to do so again. This is going to entail a long and nasty fight, probably involving some local-level violence, similar to the 1930s. It can only be postponed for just so long.

Americans, this is just one more wake-up call. If Congress ends up doing what the Senate just voted for, that will be $50 billion more that the children of the working class will have to pay off in time. Smell the coffee, right now -- just plain old Joe, no lattes. In time, you won't have money to pay Starbucks for many of the latter.

Manifesto Joe Is An Underground Writer Living In Texas.


Marc McDonald said...

I've always maintained that, if there are any non-wealthy Americans who aren't angry about our nation's income tax code, then they're either stupid, or they're not paying attention.

If you're not angry, I recommend the books, "America: Who Really Pays the Taxes?" and "The Great American Tax Dodge" by Barlett and Steele.

The authors show how, because of loopholes, working-class and middle-class people pay taxes at a higher rate than a lot of millionaires.

To give just one example, Barlett and Steele cite the case of two billionaires who, back in the 1990s, testified under oath that over 25 years, they never paid a dime in income tax and they never even bothered to file a federal income tax return.

By contrast, Barlett and Steele point out that if you're an ordinary taxpayer who earns $40,000 a year or less and you fail to pay all of your taxes, you WILL be busted.

As the authors point out:
"Suppose you earn $40,000 a year and don't file a return. When the IRS catches up with you it prepares a substitute return, estimates your income, calculates the tax you owe, tacks on interest and penalties, and sends you the bill. If you don't like their numbers, you must prove that the IRS is incorrect. What's more, the agency may seize your bank accounts, your car, and whatever else you have of value."

But let's say you're a rich person. Odds are, the IRS will treat you with kid gloves. Again, quoting Barlette and Steele:

"The IRS does not fully investigate high-income nonfilers, which creates an ironic imbalance. Unlike lower income nonfilers in the Substitute for Returns program, high-income nonfilers who do not respond to IRS' notices are not investigated or assessed taxes. Even if high-income nonfilers eventually file tax returns, their returns receive less scrutiny than those who file returns on time."
What's the IRS's explanation for the double standard? Incredibly, it told GAO that it does not prepare a substitute return for rich nonfilers, as it does for middle-income people, because it fears that it might "understate taxes owed." In other words, no loaf is better than half-a-loaf. So do nothing. Second, GAO said, "to pursue more high-income cases, IRS would need additional staff." Which, of course, is precisely what Congress refuses to provide."

PawPaw said...

I'm a working class American and I have been for the past thirty years. The problem is that as I get better at what I do, I command better wages. Not much better, but better. My wife, also a working class American, also makes better money than she did thirty years ago. Guess What? We're probably going to get hit with the Minimum Alternative Tax this year. All the kids are grown and gone, the house is pretty much paid for.

Suddenly, after years of scrimping and getting by, I'm wealthy? I don't think so. I'm in pretty good shape, but for you to characterize me as wealthy... that just ain't right.

Manifesto Joe said...

Y'all must be doing a bit better than us. (My wife hasn't been working while she's been caring for her bedridden mom for a couple of years.) But, the point is that the problem is systemic. There are so many people, and corporations, who have the ability to pay, but their political clout has ensured that they will not. At least, not anytime soon.