Wednesday

September 26th, 2018

Insight

Republicans know this tax is an 'abomination,' so why is it still in their bill?

Marc A. Thiessen

By Marc A. Thiessen The Washington Post

Published Dec. 11, 2017

Republicans know this tax is an 'abomination,' so why is it still in their bill?

The phones of House and Senate leaders are ringing off the hook right now, as CEOs and wealthy donors lobby them furiously to lower the top income tax rate and insert costly carve-outs into the GOP tax bill to protect their business tax preferences. Too bad regular taxpayers don't have a direct line to the conferees hammering out the final bill to plead their cases. Because it seems as though they have been forgotten.


Case in point: At the last minute, Senate Republicans changed their version of the tax bill to keep the Alternative Minimum Tax (AMT) - a pernicious parallel tax code which they had promised to scrap that requires corporations and millions of individuals to calculate their taxes twice and pay whichever rate is higher. On hearing the news, corporate lobbyists swung into action, pressing GOP leaders to get rid of the corporate AMT in the final bill. And their efforts seem to be paying off. The corporate AMT "has to be eliminated," House Majority Leader Kevin McCarthy, R-Calif., said on last week.


But what about individuals? Who is championing AMT repeal for them?


Enter Sen. Richard Burr, R-N.C., who is fighting to get the individual AMT removed from the final tax reform bill as well. "Repeal of the individual AMT has been a fundamental element of Republican tax reform campaign promises for years," he told me. "By leaving the individual AMT in place, we would be punishing hardworking Americans and doing virtually nothing to simplify the tax code."


Burr is right. Congress created the AMT in 1969 after the Treasury Department reported that 155 high-income filers were using tax breaks to avoid paying any income taxes. In 1970, it affected only 20,000 very high-income taxpayers. But today, the number of people impacted has ballooned to 5.2 million.

Most of those who currently pay the AMT are not from the highest-income households for which the tax was intended, but the middle and upper-middle class - folks who have enough money to be a ripe target of revenue raisers, but not enough to have influence on Capitol Hill. They are mostly two-earner households with mortgages to pay, who give to charity and have children.


The AMT also hits the families of our fallen warriors. According to Burr, children who receive an annuity from the Uniformed Services Survivor Benefit Plan (SBP) can see the AMT eat up as much as 26 percent of their benefit. No Republican tax bill should punish individuals like these - especially not to pay for tax breaks for corporations and the wealthiest among us.


Members of the Trump administration know that the AMT is a horrible tax. In 2006, Kevin Hassett - now chairman of the Council of Economic Advisers - called the AMT "an economic abomination" and urged Congress to "erase it from the tax code completely." Yet instead of erasing it, Republicans are retaining it.


Keeping the individual AMT means many Americans will see no tax cut under the GOP bill, Burr says. It defeats the entire purpose of tax reform. GOP leaders promised to make the tax code simpler and fairer. But the AMT increases tax complexity and raises compliance costs for 10 million American taxpayers, who must calculate their taxes using two separate systems every year - and then pay whichever rate is the highest. That is not simple or fair. It is obscene.


GOP leaders are focused on passing corporate tax cuts to fuel economic growth, which is a good thing. But they seem to have lost sight of the fact that reducing taxes for individuals is important, too. According to the Tax Policy Center, even before the AMT retention, 1 in 4 Americans will not get any tax cut under the Senate bill, and 14 percent of middle-class Americans will get a tax increase of $1,170.


That is a problem for the GOP. If Americans see the GOP borrowing $1.5 trillion to pay for tax cuts, and they end up getting either no tax cut or paying more next year, they will punish Republicans at the polls. Instead of more carve-outs for corporations and fat-cat donors, Republicans should give tax relief to more individuals, especially the middle class.


Will Burr vote no on final passage if the individual AMT is not repealed? He hopes it won't come to that. "I am confident the House and Senate conferees will fix the individual AMT in the final tax reform bill," he says. Let's hope he's right. If Republicans get rid of the AMT for corporations, but not for individuals, that will send a clear message to American voters about where the GOP's interests lie.

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