DON'T DO IT!
Some Senators Consider Borrowing Billions Instead of Paying for AMT Reform
It has been reported in several news outlets that Senate Finance Chairman Max Baucus (D-MT) was unable to get a majority of his committee's members to agree, at a meeting Wednesday, on how to pay for a temporary fix for the Alternative Minimum Tax (AMT). As a result, some Senators have suggested that they should waive the pay-as-you-go (PAYGO) rules that were reinstated at the start of this session and which are supposed to prevent Congress from expanding the national debt.
The Bush tax cuts increased the number of people subject to the AMT and the Republican-led Congress never permanently indexed for inflation the exemptions that keep most of us from having to pay it. As a result, 23 million taxpayers (17 percent of all taxpayers) will pay the AMT for 2007 if Congress makes no change to the law.
Not Worth Breaking the Bank
But the AMT is not exactly the greatest threat right now to the average American. Even if Congress does nothing (which is extremely unlikely) around 60 percent of the AMT would still be paid by the richest 5 percent of taxpayers. In other words, if there was ever a good reason to borrow billions of dollars and have to pay it back with interest, this is not it.
Several Measures Would Be Good Policy AND Could Pay for AMT
That is especially true because there are plenty of options that Congress can pursue to offset the cost of temporarily or permanently fixing the AMT. For starters, Congress could scale back the Bush tax cuts for the wealthiest people, who are reaping most of the benefits.
Congress could also close the loophole for "carried interest" paid to billionaires who run investment funds, and who are currently allowed to pay a lower tax rate than their secretaries. Several hundred organizations signed a letter in early September urging Congress to close this loophole. Congress could also crack down on tax avoidance associated with offshore schemes, stock options and misreporting of business income, and limit tax breaks for the deferred compensation of millionaire executives.
It's expected that a bill to "patch" the AMT for one year will be introduced in the House by Ways and Means Chairman Charles Rangel in the coming weeks and will likely include some combination of revenue-raising provisions to offset the cost. Rangel has, however, said members of the House may also disagree over how to do so. (Rangel also plans to introduce a larger bill to repeal the AMT entirely, and offset the costs, but that may not be acted upon until next year.)
Deficits Are Not a Progressive Solution
Congress should not waive PAYGO. The more money we borrow, the more we have to pay to make interest payments. Currently nine cents of every dollar we send to Washington goes just to interest payments -- just to pay for the privilege of borrowing. Besides that, budget deficits can endanger vulnerable families since the public services they depend on are often targets of cuts whenever conservative politicians decide it's time for "deficit-reduction" measures.
Conservative [Reckless] Approaches to State Fiscal Policy
Policymakers in South Carolina learned late last week that the state will likely face a budget deficit of some $430 million heading into FY 2009. A number of states will have to close budget gaps in the coming fiscal year -- in part because critical sources of revenue growth have slowed with the cooling housing market. But South Carolina has brought some of this problem on itself. As the Bureau of Economic Advisors -- the body responsible for the latest budget projection -- indicates, one of the three largest factors contributing to the likely deficit is the $240 million in tax cuts enacted this summer.
News like this should give elected officials in Utah some pause. According to the Deseret Morning News, legislators there are already talking about using a projected $400 million budget surplus to cut taxes once again. Yet, as the News points out, that surplus may exist only because Utah's budget projections have not yet been updated to account for previously enacted tax cuts. In other words, some elected officials want to use these surpluses, which may not even exist because of previous tax cuts, to fund more tax cuts. Anti-tax politicians with this kind of mindset like to portray themselves as conservative, but this kind of behavior can only be described as reckless.
EITC Innovation
Over the past year we've told you about the growing popularity the earned income tax credit (EITC) at the state and federal levels. This credit offers financial assistance to low-income workers based on family size and income. The credit usually receives strong bipartisan support and keeps many families from living in poverty. Now twenty-three states plus the District of Columbia offer some type of EITC in addition to the federal one. One criticism of the credit is that people don't know they could be eligible to receive benefits -- thus millions of dollars in credits goes unclaimed. Legislation signed into law last week in California goes a long way to ensuring that working folks are notified about the federal credit. Assembly bill 650 mandates that "an employer [will] notify all employees that they may be eligible for the federal earned income tax credit." Other states would do well to follow in California's groundbreaking footsteps.
Plan to Abolish Georgia's Property Taxes Faces New Roadblock
Georgia House Speaker Glenn Richardson's plan to repeal all Georgia property
taxes and make up the lost revenue by expanding the state and local sales
tax base ran
into a roadblock last week. Two new reports from Georgia
State University's Fiscal Research Center (FRC) show that repealing
property taxes would
dig an annual $8.6 billion budget hole for the state -- and that
under any reasonable scenario for expanding the sales tax base, a property-for-sales
tax swap would
fall at least $2 billion short of filling that hole. Since Richardson
has described his plan as "revenue neutral" without actually providing
detailed revenue estimates, the new reports cast doubt on whether this
tax swap can be accomplished.
As the FRC report's detailed revenue estimates make clear, the only way
such a plan could even approach revenue neutrality would be to tax items
that (to put it mildly) wouldn't find much support among the public or
tax analysts, including purchases by the federal, state and local government
($2.2 billion), health care ($600 million), and rent ($405 million).
Richardson helpfully
suggested this week that the authors of the reports "should sharpen their pencils," but
didn't offer more substantive criticism of the FRC analysis.
Even worse for
advocates of this tax swap, the latest data show that Georgia sales
tax collections in September were down
10% from
last September's collections, which is not a good sign for those
who want to use sales taxes to pay for property tax repeal.
