Michael Kinsley on the AMT:
The alternative minimum tax. It sounds horrible, doesn’t it? And it has very bad press. The AMT was invented in 1969 as a way for the government to collect at least something from affluent people who had been a bit too successful at taking deductions and credits on the basic Form 1040. It operates like an extra fence around a maximum-security prison. If they don’t get you the first time, they’ll get you the second.
It would be easy to get indignant here because that’s a ridiculous analysis. It’s impossible to describe those 155 non-taxpayers as “a bit too successful at taking deductions and credits on the basic Form 1040”. Those deductions and credits came about because the politicians were picking winners and losers with giveaways in the tax code. The problem arose because 155 people figured out they could benefit from complexity being harder to manage than simplicity and the extreme inability of politicians to grasp that.
The next paragraph eliminates indignation, almost.
Conceptually, this is all wrong. Tax deductions aren’t (or aren’t supposed to be) goodies distributed like candy on Halloween. Each one should have its own justification. And you are entitled to each one you qualify for. Giving the kids too much candy and then trying to take some of it back is a good way to become unpopular in the neighborhood. The AMT is getting more unpopular every year, as more and more taxpayers fail to make it over that second fence. That group was fewer than 1 percent of taxpayers in 2000 and will be 20 percent in 2010 unless something is done.
There are a few points worth making, but they require going into details. Mr. Kinsley is offering an incomplete summary more than analysis. Fine. But it’s incorrect to assess the AMT’s new victims as failing to make it over the second fence. The AMT is getting unpopular, in the basic populist sense that it arose, because the government is actively pushing people over the first fence. Mr. Kinsley later adds:
The problem with present arrangements isn’t the AMT; it’s Bush’s tax cut for the affluent.
That is a reason more people are hit by the AMT. It is not the problem. From the liberal viewpoint that loves progressivity¹, everyone else is the rich. The average liberal voter is thinking that he is, at best, succeeding reasonably, whatever his level of success. It’s the other guy who should face the burden, the guy who is supposedly rich. He knows there’s a top sphere that deserves to be
punished forced to pay his fair share, but he is never that guy. Now that the AMT is hitting through poor (illegitimate) design, the dual burdens of complexity and stupidity hover around his checkbook. And he’s pissed.
Later, Mr. Kinsley writes:
The AMT prevents the federal deficit from being even higher than it is.
Technically true, I suppose, but that’s wrong. The deficit is high. “Higher” is worth discussing, but the inability of Congress to stop trading federal goodies for votes keeps both the deficit and taxes high. Deficits prevent the AMT from being lower.
Mr. Kinsley’s conclusion, however, is spot on. A flat tax would be the answer. But the problem always rests with politicians and their inability to govern based on principles of fairness (and the Constitution), as opposed to the economic populism that currently rules.
But one person’s loophole is another person’s important social policy — or, in fact, the same person’s important social policy. As soon as we get that simpler system, people will start cluttering it up again: lower rates for capital gains, to encourage investment; the charitable deduction, to encourage philanthropy; a bigger exemption for dependents, to encourage “family values” (you got a problem with this, buddy?). But all that’s okay — in 20 years we can sweep out the clutter and start all over again.
¹ Conservatives love the AMT, too, since they can’t be bothered to spend less. Or fix the AMT while they had complete control of the government.