Bush's Secret Tax on Democrats

The Alternative Minimum Tax has become a Republican weapon.

The AMT seems designed to snare people who earn between $200,000 and $500,000; who work in fields like finance and technology; and who live in places where property taxes and state and local income taxes are high, like New York, New Jersey, Connecticut, Massachusetts, California, and Oregon—states that are resolutely Democratic.

Republicans don't want to fix the AMT because fixing the AMT would require undoing their beloved tax cuts. Without the billions generated by millions of taxpayers getting slammed by the AMT, the marginal rate cuts would be impossible to sustain for the next several years, let alone make permanent. Without the AMT, the deficit picture would look far worse than it does.

Gale and Burman estimate that repealing the AMT could cost the treasury $1.1 trillion through 2014, assuming the tax cuts are extended. The kicker: "By 2008, it would cost more to repeal the AMT than to zero out the regular income tax."

So what's the problem? After all, tax revenues have to come from somewhere, so why not AMT payers? Economists point out that the AMT has become a nonsensical tax, totally disconnected to its intended purpose. As taxpayer advocate Nina Olson pointed out in her Dec. 2003 report, the AMT now functions "randomly, no longer with any logical basis in sound tax administration." The AMT no longer serves to trap wealthy tax avoiders as it was designed to do. Instead, because it isn't indexed, it punishes people who were never intended to be its targets.