AMT reluctance exposes Congress' real motives

The fact that Congress has been reluctant for years to repeal - or even adjust - the Alternative Minimum Tax exposes something very telling. It is obvious that the fact that the AMT is encroaching on the middle class is a result of a phenomenon that is particularly endemic to governing bodies - the "law of unintended consequences". By not indexing the AMT to inflation when it was instituted back in 1969 - and leaving it that way for the almost 4 decades since - they created one of the most stealth taxes ever seen. In fact, it is almost surreal that it has taken 38 years to boil this frog. After all, how many of the current hoard of zombies that haunt the halls of Washington were around when the AMT was created? (Ted Kennedy being the obvious standard-bearer.) While it is unfair to hold the current class of Congress responsible for the initial installment of the AMT, it is entirely up to them as to what happens to it now... or last year, or next year.

But they won't. They will spend many hours wearing out the rubber-stamp cliches, certainly. Check out some of these quotes:

Jim Manley, a spokesman for the Senate Majority leader, said. "Senator Reid is committed to paying for AMT relief, but the Republicans have made it clear that they are not." If you pick apart the two phrases, the only issue is that Reid wants to keep the tax money - that they never should have been getting - in Washington where as the Republicans realize that they shouldn't be getting this revenue in the first place were it not for a mathematical oversight 40 years ago.

A spokeswoman for Senator Obama of Illinois said only that he "supports a fiscally responsible fix to the problems with the AMT" and would look carefully at legislation the Senate considers. "Fiscally responsible" to whom? It should be intuitively obvious, even to the most casual observer of political regurgitation, that Obama is wanting to be "fiscally responsible" to government - not responsible to the people he purports to represent. He doesn't care if the people come up shorter on their take-home pay this year, as long as government doesn't have to give back their happenstance windfall.

At least Charles Rangel is honest about it. The gravel-voiced chairman of the tax-writing House Ways and Means Committee, said he instead would attempt “the mother of all tax reforms”: total repeal of AMT, with lost revenue paid for by massive taxing of the rich. So - again we pause to think a bit between the lines:

• The AMT was supposed to hit the rich who were not paying taxes.
• They goofed and now it is hitting the middle class.
• To pay for the removal of the middle class from the AMT roles, we are going to charge the rich more despite the fact that they are already paying the AMT (and most of the country's tax burden anyway).

So... to encapsulate the general reaction... "We can't do that," they state with pompous certainty. "What will it cost us?"

My response to this line of reasoning is "why can't you?" In truth, it doesn't cost Congress anything at all to remove the AMT. It costs the taxpayers to pay it. Therein lies the problem. Congress believes that our tax revenue is their money. If they cut a tax revenue stream, they truly believe that they have to replace it... or do with less. I don't see a lot of serious consideration about what it will cost the taxpayers... either via the AMT or the other taxes that they want to install to replace the "lost" revenue.

In fact, by costing the proverbial "average household" extra money, they are in fact asking us to rearrange our spending priorities to accommodate less disposable income. That is, we have to either cut back on certain things we are used to having or not take on new discretionary expenses. Why can't we expect Congress to follow that same logic - i.e. cut back on certain things that they are used to having or not take on new discretionary expenses?

The truth is, they don't want to cut back on their expenses - and really don't think they should have to. That is why they are balking at doing anything about the cash cow that is the burgeoning AMT receipts... at least until they can make it up some other way. They don't care about us being able to buy what we want for ourselves - only about continuing to be able to buy what they want for us (whether we want it or not).

I wish I was poor - they get richer!

Here's a brief tidbit... we've all heard the claims that "the rich are getting richer and the poor are getting poorer." Actually, there are a variety of those claims whittled into a handy quiver of cliches. But how true is it? Or is it true at all?

According to the Treasury Dept.'s latest statistics... well... see for yourself...

In the 10 years between 1996 and 2005, the lowest quintile (20%) almost doubled their median income. Not bad, eh? What's more, people didn't stay in their income groups. Nearly 58% of income tax filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. About 25% of them jumped into the middle or upper-middle income groups (third and fourth quintiles), and 5.3% made it all the way to the highest quintile. Of those in the second-lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. (I'm not entirely sure how that is possible mathematically unless there is an increase in the number of people overall.)

Let's think between the lines here... this is not simply your income increasing along with everyone else's. That is your income increasing fast enough to have passed other people's. Sure, there's a bit of "churn" there since people must have moved down. That will always be happening to some extent as people get promotions, demotions, lay offs, their businesses do better or worse, etc. The important implication of all of this is that people are not locked in to their lot in life. There is no inherent "caste system" either implicit or explicit (like how the evil Republicans must be trying to keep people repressed in order to protect their cronies).

So how do things change? Unless there are an overwhelming number of "life's lotteries" (see my commentary on how Barack Obama thinks) going on that we don't know about, there must be something specifically individual to this phenomenon. Could it be that... if you try to do something valuable, you may succeed at doing something valuable... and you will be rewarded with something valuable?

Welcome to the individualist, capitalist market at work. Adam Smith would be proud.


(Some of the statistics here were taken from a Wall Street Journal Opinion Feature.)