Alms From the Poor

"Reform" won't protect the middle class from the stealth tax


If you've wondered how it is that Bush has financed five straight years of tax cuts, chances are you've considered a) cuts in entitlements; b) cuts to the safety net; and c) an end to corporate welfare. Okay, okay, so we're kidding about that last one. The point we're getting to in what's in danger of becoming too round about a way is that one reason W has been able to cut taxes on the super-rich so deeply is because of this nifty little algorithm in the tax code known as the alternative minimum tax.

The AMT was originally created as a failsafe to keep the rich from spending their way into enough exemptions and write-offs that they might pay no taxes at all. It's mentioned in the instructions to your tax form, but up until recently, unless you had 11 kids or some other freakish reason for claiming a jillion deductions, you would never have had reason to notice it. Now, however, low- and middle-wage earners are being dinged by it when they take, say, a deduction for health expenses. Or a third or fourth kid. When it kicks in, it ratchets up your tax rate significantly, with the happy--to W--effect of offsetting those tax cuts for the wealthy.

We mention it today because the U.S. House of Representatives has finally taken a baby step toward plugging the hole. Here's the intro to Bloomberg News' story on it:

The US House of Representatives passed a measure that would spare 15 million households from a $30 billion alternative minimum tax increase next year.

The 414-4 vote would renew a temporary law exempting the first $58,000 of a married couple's income from the minimum tax. House Republicans scheduled the vote a day before acting on a $56.6 billion budget measure that extends the 15 percent rate on dividends and most capital gains.

For starters, what married couple do you know who get by on $58,000 a year? No one with kids and anything other than a bohemian lifestyle, I'll wager. If we got rid of the breaks for the rich families trying to get by on that kind of scratch could keep their money--maybe even spending some of it, like the economists say they should be. Even so, doesn't it seem kind of shoddy that hours after enacting a fraction of a fix, we're lobbing the ruling class another fatty?

There's another Bloomberg piece up right now that provides a great primer on the whole thing. It's possibly the most readable explanation I've ever stumbled across for how the money comes back out of your pockets even after Uncle Sam says it can stay in.

If you're still geeked after you get through with that--or, perhaps we ought to say, enervated--you should dip into the City Pages archive to read our interview with Pulitzer-winner David Cay Johnston, "Everything you Know About Taxes is Wrong." If you didn't know a story about taxes could be as dramatic as a true crime saga, obviously you haven't been thinking about the real true crime stories of the moment.

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