Let's Hear It for the AMT

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Ruth Marcus has a good column in today's Washington Post on the alternative minimum tax, which she calls "Bush's stealth tax increase." It's accompanied, in the print edition and online, with a table that shows the percentage of tax cuts taken back by the AMT. The biggest hit is taken by people in the $200,000-$500,000 range, who lose 74 percent, while the AMT takes back only 7 percent of the tax cuts of people with incomes over $1,000,000–presumably because the credits for college tuition and state and local taxes aren't worth much to people like Bill Gates. (I remember reading that one year he paid 1 percent of all U.S. income taxes.)

Here's Marcus's denunciation of Bush:

In fact, in an irony that only a tax geek could love, the AMT has been transformed from its original purpose, a means of assuring that the wealthiest pay at least some taxes, into a way of underwriting tax cuts for the wealthiest.

What do you want to bet that Marcus and her husband have been hit by the AMT? Not that her anger isn't justified. There's a psychological element here. People like Marcus (including me) don't like to think we're really rich. We know we're well up on the income scale and are accumulating wealth, but we don't feel we can afford everything we want. The really high taxes, we instinctively feel, should fall only on people wealthy enough to afford private jets. We fly coach.

I've written about the AMT several times in this blog; here is a recent post with links to earlier ones. A tax passed to get some revenue from an elderly lady who kept all her money in municipal bonds has morphed into a tax that threatens to gobble up extra thousands for affluent professionals who not unreasonably do not consider themselves rich. Marcus cites figures from the Brookings Institution and the Urban Institute that 89 percent of families with two or more children and incomes between $75,000 and $100,000–people in a very different situation from the late Mrs. Horace Dodge–will get hit by the AMT in 2010, compared with 1 percent in 2006, and that almost half of all taxpayers will have fallen into the AMT in 10 years.

The reason for that high jump from 2006 to 2010 is that Congress has been passing stopgap measures every year to keep lots of people out of the AMT; the 1 percent would be higher if it hadn't. And here's where I think Marcus's column misses the mark. She criticizes the Bush administration for seeking further tax cuts–permanent repeal of the estate tax, lower top rates, extension of the cuts in taxes on capital gains and dividends–when in her view the revenue from those taxes is needed to cut the AMT. Her feelings of outrage, and the serious arguments she makes against the AMT, are, I am sure, shared by many voters like her in high-income states like Massachusetts, Connecticut, New York, New Jersey, and California–states with lopsidedly Democratic delegations in Congress. Many of those members understand that sooner or later they have to do something about the AMT.

Marcus scoffs at the Bush administration's call for "a permanent solution but in the context of revenue-neutral comprehensive tax reform" and makes the valid point that the administration hasn't made any specific recommendations for that.

But the crux of the matter is this: The AMT is the lever that sooner or later is going to move us to a major tax reform. Toward something like the rate-cutting, preference-eliminating tax law enacted with bipartisan support in 1986. Democrats aren't interested in lower rates; they'd like to raise the rates on high earners instead. But politically they have to get rid of the AMT. And doing that is too expensive under the pay-go rules that the Democrats have reinstituted for taxes. The only way to do it is by comprehensive changes in tax law.

I don't expect such a reform in this 110th Congress. But it could come in the 111th or 112th. The pressure will be there, whichever party wins the elections of 2008 and 2010. I guess we can thank the late Mrs. Horace Dodge for that.

The Amazon

I attended a book party at the Amazonia exhibit at the National Zoo last night for Mark London and Brian Kelly's new book, The Last Forest: The Amazon in the Age of Globalization. Disclosure: Brian is executive editor of U.S. News and usually edits my columns. This is Mark and Brian's second book on the Amazon; the first was published more than 20 years ago. When I got home, I started diving in, and after the first 50 or so pages, I can recommend it heartily.

A lot has happened to change their view of the Amazon over the past two decades. Archaeologists now believe that the Amazon was much more heavily populated in the years before 1492 and that its first humans may not have come, as used to be thought, from North America. (They cite Charles Mann's excellent book 1491, which I praised in this blogpost.)

And the picture of the Amazon as essentially vacant land today is just not right: 20 million people live there. And while land is being deforested, the Brazilians are making serious efforts to protect their biological heritage and the heritage of the indigenous peoples there. This excerpt from this week's print edition of U.S. News gives an idea of the book's perspective; or you can look at a video of Brian on the U.S. News website.