Before heading out of town this week Congress voted to spare some 21 million Americans next spring from having to pay a special income tax rate that was devised to snare tax-dodging millionaires. That sounds charitable, but Congress and the president were never going to face 21 million angry voters in an election year. The real story was how they did it and the lies that enabled them.
They did it by piling billions more on the national debt and future taxpayers and protecting the tax sanctuaries — one more time — of some of the least deserving rich men and corporations in the country. There have been bigger votes on the greed scale the past seven years, but the votes on the alternative minimum tax (AMT) put the excesses of the era in starker relief.
In fact, the whole dilemma of the alternative minimum tax is the story of how government nourished and sanctioned greed and economic injustice on a biblical scale. The votes in the Senate and House of Representatives the past week are just one more perverse chapter.
Congress instituted the AMT in 1969 when an IRS report showed that there were multimillionaires who worked the tax code to escape even a dime of taxes. So the AMT became a parallel tax structure that would ensnare the rich evaders and make them pay some taxes.
When the Republican Congress passed President Bush's big tax cuts, devoted primarily to the rich, in 2001, one of the effects was to push first hundreds of thousands, then millions of unsuspecting taxpayers into the AMT and tax rates up to 35 percent. Taxpayers, especially those with large families, would fall into the trap although their incomes ranged from $50,000 to $500,000, not millions. Twenty-one million of them would discover that surprise on April 15.
No one in Congress wanted it to happen, and President Bush said he didn't either, but Democrats who had adopted a pay-as-you-go doctrine said the loss of the extra revenue from those taxpayers should be made up by other sources, and they identified several sanctuaries. They wanted to restrict the tax-avoidance schemes of wealthy people who planted their incomes offshore, delay another big tax-avoidance scheme by multinational corporations that Bush had pushed through earlier and end a giant tax subsidy for rich fund managers who pay taxes far below rates of middle-class workers.
But Bush, with loyal support of Senate Republicans, said he would veto any bill that made any of the fat cats pay a penny more in taxes. A few conservative Democrats — our own Mike Ross among them — held out to make the AMT bill fiscally neutral, but with Christmas approaching they all caved.
Bush and the Republican leaders were quoted in the media every day as saying that making those people pay more in taxes was not necessary because the AMT impact on the 21 million middle-income taxpayers was totally unanticipated. No one knew it was coming.
That lie was never exposed.
All along, the huge increase in the AMT (it will be much greater than 21 million in 2008 and reach 35 million in four more years) was part of the bargain in 2001. The people pushed into the AMT — that's many of you — were supposed to subsidize the massive tax cuts for the rich and corporations in 2001, 2002 and 2003. The anticipated extra tax collections from the AMT masked the deficit. Otherwise, the deficit projections were so huge that many would have blanched. (Many of the tax cuts, like the elimination of the estate tax, were set to end in 2010, which also reduced the long-term deficit forecast.)
Here's the proof that it was planned all along: Treasury Secretary Paul O'Neill, subsequently sacked by the president for excessive honesty, told Congress on Feb. 13, 2001, that the Bush tax program would dramatically increase tax revenues from the AMT, by $262 billion, and increase the number of taxpayers in the AMT to 34.7 million. Those figures were built into the budget forecast. Sen. Charles Grassley, the Republican chairman of the Finance Committee at the time and who this week insisted that the AMT expansion came out of the blue, said in 2001 that the Bush tax cuts would double the number of Americans hit by the AMT.
That was the whole idea back in those heady days.
And probably this, too: The Congressional Budget Office, analyzing tax data for 2005, reported this month that America's super rich are getting richer faster and the concentration of national wealth at the top is growing faster than it has since the 1920s. The increase in the incomes of the top 1 percent of Americans between 2003 and 2005 exceeded the total income of the poorest 20 percent of Americans. The pace is still not fast enough for the people who control the nation's destiny, who think the tax laws still favor the middle class and the poor.
The country is wise to what has been done and the 2008 elections will be a turning point. But from the presidential campaigns of both parties you would never know that it is even the slightest issue.