New CTJ Report: Congress and the Public Face a Stark Choice on AMT

A new paper from CTJ shows the percentage of taxpayers in each state who would be helped by H.R. 3996, the AMT relief bill passed by the House of Representatives on November 9. The paper also shows the distribution of the benefits of AMT relief by income group.

The figures show that AMT relief, by itself, would not be particularly progressive. Most of the benefits would go to the richest fifth of taxpayers, and if it's deficit-financed, the cost could be borne in the future by middle-income Americans in the form of cuts in public services or higher taxes. But AMT relief can be progressive if the costs are offset with revenue-raising provisions that target the very wealthiest Americans, those who have benefited the most from the Bush tax cuts.

This is exactly what H.R. 3996, the bill passed by the House of Representatives last week, does. It closes loopholes that benefit highly-compensated fund managers, for example, who are likely to be among the wealthiest people in America.



Adding $50 Billion to the Federal Deficit Is Not Enough for Republican Leaders; Now They Demand Extension of Bush Tax Cuts, Even Bigger Deficits

Republican leaders in the Senate refused on Thursday to go along with a procedural plan to call up the House bill to extend AMT relief for one year (H.R. 3996) for a vote. Under the plan, the Senate would have voted on this bill and if that vote failed, it would be followed by another vote on an alternative that would extend AMT relief for a year but without offsetting the costs the way the House bill does.

The plan basically acknowledged that the House-passed H.R. 3996 is controversial because, in order to offset the costs of AMT relief, it eliminates tax subsidies (like the carried interest loophole) for highly-compensated people, which Republican leaders claim are vital to the economy. Democratic leaders in the Senate support H.R. 3996 because it is fiscally responsible, but the plan would have allowed for the possibility that it would not get enough votes to pass. In that event, the plan would have allowed the Senate to waive pay-as-you-go (PAYGO) rules and proceed to the alternative AMT bill, which would increase the budget deficit.

Republicans would have been allowed one amendment, which probably would have been a measure to simply repeal the AMT entirely without replacing the revenue (which has a much bigger price tag than one-year AMT relief). This probably would not have succeeded, so Republicans wanted to offer additional amendments to extend parts of the Bush tax cuts for the wealthy without offsetting their costs. This is where the Democratic leadership drew the line.

Republican Leaders Bring Anti-Tax Extremism to a New Level

The dispute illustrates how divided the Senate is on tax issues. The Democrats restored PAYGO rules this year in order to halt the growth of budget deficits. It would be a major setback for fiscal responsibility if the Senate waived PAYGO in order to provide AMT relief, which mostly benefits the richest fifth of taxpayers. But Republican leaders now argue that this concession on the part of the majority is not enough. They demand that Congress increase the budget deficit even more by extending the Bush tax cuts.

Extending Bush Tax Cuts Would Be A Fiscal and Moral Disaster

CTJ estimates that the Bush tax cuts will cost a grand total of about $2.35 trillion over the 2001-2010 period. Even if they are allowed to expire at the end of 2010, the interest payments on the resulting debt will alone cost $1.5 trillion in the decade after that. If the Bush tax cuts are made permanent, the additional cost (and the increase in the deficit) will be a whopping $5 trillion over the 2011-2020 period. Some proponents of tax cuts claim, with absolutely no evidence supporting them, that tax cuts enhance the economy so much that they pay for themselves, but lately even President Bush's OMB director has admitted that this is not true.

It's worth remembering that the particular tax cuts Republican leaders are most enamored with almost exclusively benefit the wealthy. For example, a key cut lowered the rate for dividends (which were previously taxed at ordinary income rates) and capital gains (which were previously taxed at an already low 20 percent) to 15 percent. Capital gains and dividends should both be taxed at ordinary income rates. CTJ's estimates have found that the lower rate for both cost around $92 billion in 2005 alone and about three fourths of the benefits went to the richest 0.6 percent.