The Alternative Minimum Tax instituted in 1969 was put in affect to prevent a very small number of very rich Americans from using accounting tricks to avoid paying any income taxes. How much were the “very rich” earning in 1969? Well the alternative tax applied to those who earned $200,000 or more.
So what’s $200,000 adjusted for inflation from 1969 to date? $915,000. So you can see, the AMT was never intended to reach down into the ranks of the upper middle class, and since the compensation threshold was not indexed to inflation, it’s been a fought over in Congress more and more frequently as middle class incomes rise.
Just before Congress adjourned a couple weeks ago, they passed a bill that provides some relief for those who would have to pay the AMT for 2007. The Democrats wanted to pay for the loss of revenue the AMT would have generated by raising taxes on the super rich. One plan was to make hedge-fund managers pay regular income tax rates on their billions in earnings instead of the lower 15% capital gains tax.
Whoa! What a crazy idea. Why would anybody with a normal job who’s paying 20% to 30% in Federal Income Taxes want billionaires who earn their money by extracting dollars from the economy to pay the same or higher taxes than they do? I don’t know… maybe because the hedge fund managers are taking so much money for themselves and not contributing anything tangible to the economy. Maybe they should be stuck with paying a greater portion of total income taxes.
Ask anyone you know who works for a living if he or she thinks it is acceptable for people that collect most of their income from investments – not from real jobs – to pay a lesser tax rate than they do. I think you’ll find the idea of the super rich getting discounts on income tax rates makes them very angry.
Back to that AMT bill recently passed by Congress: Here are two quotes from opposing sides:
“Let me be clear, there is no disagreement between Republicans and Democrats over protecting the middle class from the AMT,” House Majority Leader Steny Hoyer, D-Md., said. “The question is, will we do so responsibly or charge tens of billions of dollars to our grandchildren?”
Rep. Eric Cantor, R-Va., the Republicans’ chief deputy whip, said the Wednesday vote was “a huge victory for us.” The GOP position, he said, “has been consistent down the line. We don’t believe we ought to raise taxes to correct the mistake of AMT.”
I like that… “the mistake of the AMT.” Remember, the original 1969 tax was targeted at those earning more than $915,000 dollars a year in today’s dollars. The “mistake” of course is that the 1969 income level was not indexed to inflation. If it was, it would have continued to affect only the very rich as originally intended. So why are the Republicans so adamant about not raising taxes on the super rich to offset the loss of revenue? Pretty simple really. It’s all part of the Republican plan to shift a large portion of the tax burden from the ultra rich to the middle and lower classes.
NOT TRUE! You say. Oh really…
Take a look at these numbers that Paul Krugman derived from recent “Historical Effective Federal Tax Rates” reports put out by the Congressional Budget Office:
Here’s what the numbers say about percentage gains in after-tax income from 2003 to 2005:
Bottom quintile: 2%
Next quintile: 2.4%
Middle quintile: 3.9%
Fourth quintile: 3.7%
Top quintile: 16%
Top 10%: 20.9%
Top 5%: 27.7%
Top 1%: 43.5%
It was a boom, all right — but only for a few people.
Leave it to Bush and his congressional foot soldiers to protect “his base” by refusing to raise income taxes on the richest Americans who have seen their incomes increase by 43.5% over the last three years compared to the 2% to 3.7% for bottom 80%
They’d rather run higher deficits than offset the loss of revenue from a “mistake” tax that crept its way into the middle class than transfer the burden to the richest 1% that can easily afford to pay back a portion of what they’ve extracted from the rest of us.
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