Different River

”You can never step in the same river twice.” –Heraclitus

April 17, 2005

Liberals for tax cuts for the rich?

Filed under: — Different River @ 10:28 pm

This is pretty amazing — one of those things that “everyone knows” is that conservatives are in favor of tax cuts and liberals are against them. And if not all liberals are against tax cuts, then they are at least against “tax cut for the rich,” right?

Well, not necessarily — or perhaps, not anymore. There is this thing in the U.S. tax code called the “alternative minimum tax,” known, perhaps not so affectionately, as the AMT. The idea behind the AMT is that if a high-income person takes “too many” deductions — say, makes “too many” contributions to charity, or invests “too much” in tax shelters like Eskimo fisheries, or has “too many” personal exemptions (read: too many children) — that high-income person does not ending up “too little” tax. It started like this:

In the waning days of the LBJ Presidency, Joseph Barr became Treasury Secretary for all of 30 days on a recess appointment. On January 19, 1969, he created a political sensation by telling the Joint Economic Committee that in 1967, 21 millionaires had managed to pay no income tax at all. This was deemed an outrage, and Congress spent the next decade designing federal tax policy in Quixote-like pursuit of those 21 millionaires.

Now, of course, it turns out that this affects a lot more than 21 people, and it affects mostly of people who aren’t millionaires. (I can’t find it online right now, but I recall reading about five years ago in Forbes about a family with middle-class income who got hit with AMT because they had eight kids — i.e., “too many” deductions relative to income.)
And, the AMT was not affected by the “Bush tax cuts” of 2001 and 2003. Better yet, there is this interesting anomaly:

Especially, er, rich, is the fact that the AMT is biting hardest in the most liberal, high-tax states. That’s because the AMT doesn’t allow deductions for state and local taxes the way the regular code does. So middle-class taxpayers in New York, California and other states with high income-tax rates are getting hit sooner than people in, say, Florida or Wyoming. It is the ultimate blue-state tax.

This helps to explain why people who normally thrill to higher tax rates are suddenly up in arms. Liberal newspapers are now denouncing the AMT as a “tax increase” and blaming the White House for not doing more to stop it. “The AMT needs to be fixed,” moans Senator Barbara Boxer’s spokesman, in what has to be a tax-reform first. “We need to address the AMT, which is trickling down to catch more and more middle-class families in New York,” says Empire State Senator Chuck Schumer, another Saul on the road to Tarrytown.

So, Barbara Boxer and Charles Schumer, who lead the fight against the Bush tax cuts (for those of us with below-AMT incomes), are now in favor of tax cuts for people with above-AMT incomes. If Bush were proposing the same thing, you can bet that those same people would be screaming about “tax cuts for the rich” and “turning back the clock” to those unenlightned days before LBJ when millionaires paid no taxes.

The irony is delicious.

And by the way, if Democrats represent the poor and Republicans represent the rich, why is it that high-income states like New York (Manhatten) and California (Hollywood) have (liberal) high tax rates, and are represented by liberals like Barbara Boxer and Charles Schumer? While poorer states like Alabama and Idaho are represented by Republicans? Just asking…

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