Saturday, July 23, 2005
The tax tangle
People understand in general terms that the country is running deficits every year and that eventually those have to be paid for by a combination of raised interest rates and slower growth, a weaker dollar, cuts in services (or the looting of Social Security), and higher taxes. But they may not understand exactly how difficult politically it will be to repair the damage, because the Republicans have created the conditions to pit one group against another. One of the worst problems has to do with the alternative minimum tax.
Burman, Gale, and Rohaly of the Tax Policy Center write (caution: PDF, but a small file)
Both the original minimum tax and its successor, the individual alternative minimum tax (AMT), have applied in the past to a small minority of high-income households. But barring a change in law, this “class tax” will soon be a “mass tax.” Current projections show the number of AMT taxpayers skyrocketing from one million in 1999 to almost 31 million in 2010. Without reform, virtually all upper-middle-class families with two or more children will be paying the AMT by decade’s end. The AMT is notoriously complex, and its record on fairness and efficiency is mixed at best. But because of its widening reach, fixing the AMT will be expensive. By the end of the decade, repealing the AMT will cost more than repealing the regular income tax.
So, the trap is laid. The AMT will increasingly hit lawyers, doctors, small business owners, and other well-paid professionals, especially in urban areas. These are people FDR was careful to include inside the New Deal Coalition (while opposing the "economic royalists") because they are opinion leaders. There are few Richard Mellon Scaifes. If each is opposed by a few hundred doctors or lawyers or small business owners, they can be beaten.
The net upshot is that when the bill for Bush's debauch comes due, the tax burden will have been effectively shifted from the very wealthy to the well-to-do. Any tax reform will have to cut taxes on the latter while raising them on the former. The rich have the money to buy protection, at least for a time. The well-to-do have the means to paralyze efforts at reform, as the doctors did so effectively in the healthcare debate of 1993-4. Meanwhile, the average person will be made jealous of any tax cut delivered to someone earning $100-$500K. All the while, we can expect a decline in the productive capacity of the nation due to low growth, high interest rates, and a weak dollar.
It's a tangle that will be politically difficult to resolve. What's likely is a donnybrook that will delay reform until a financial crisis of the magnitude of the Great Depression intervenes. Even a decade of breadlines and Hoovervilles would probably be just the beginning of paying for the folly of the Bush years.
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Sadly, this is right on the money. It's the sort of thing that needs to be emphasized over and over again.
Sigh. The conservatives currently trashing this once-great nation have no idea that if it wasn't for FDR, they wouldn't be here.
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Sigh. The conservatives currently trashing this once-great nation have no idea that if it wasn't for FDR, they wouldn't be here.
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