Columns » Ernest Dumas

Sticking it to the middle class

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Mike Huckabee is right about his party. Republicans should not be the party of fatcats by settling big tax cuts on the rich while the poor wait for someone else's wealth to splash onto them, as Huckabee described the philosophy in one of his books.

But the party's congressional wing betrays him at every turn. Last Friday, House Republicans voted en masse to protect an unsupportable tax break for the wealthy and to block tax relief for middle-income families. Not one Republican voted for a bill to prevent the dreaded alternative minimum tax (AMT) from hitting some 20 million middle-class households when they file their 2007 returns because the bill would compensate for the relief by closing a tax loophole for buyout-fund managers and some other investors.

Not even our own John Boozman, the 3rd District congressman, voted for it, although the beneficiaries of the tax cuts in his district probably outnumbered the losers by a ratio of 200 to 1. Party leaders wanted to hold rank for President Bush, who opposes the bill and promises to veto it if it reaches his desk. It won't, of course, because Senate Republicans and a couple of Democrats who are beholden to hedge-fund managers will keep the bill from a vote in the Senate. Congress will plunge even lower in the public's estimation by failing once again to take care of the public's urgent business.

Congress must act soon to prevent the AMT from hitting middle-income taxpayers, including some large families with incomes as low as $50,000. The AMT was instituted in 1969 to prevent wealthy taxpayers from using multiple tax breaks to escape federal taxes altogether after a routine treasury report to Congress mentioned that 155 millionaires paid not a penny in taxes that year.

But tax changes over the years, especially the Bush tax cuts for the rich between 2001 and 2004, perversely pulled millions of taxpayers in the middle-income range into the AMT. To prevent it, Congress each year adopts a temporary fix and postpones the permanent remedy because it would drastically reduce anticipated revenues. President Bush counts on projections of huge revenues from the AMT in the future to keep his deficit forecasts low.

The 2007 bill is a one-year fix, too, but it achieves revenue neutrality, which Democratic House rules require of tax and spending bills. In addition to taking middle-income families off the AMT roll for the year, which would reduce revenues by $51 billion, it would provide another $30 billion in new or extended middle-class relief: a property tax deduction, a tax exemption for military combat pay and deductions for college tuition, teachers' out-of-pocket expenses and employers of Katrina victims, among others.

The bill offsets those costs by closing the most outrageous loophole in the tax code, which allows executives of hedge funds and private-equity funds to pay income taxes at the very lowest rate of 15 percent on “carried interest” when their incomes should place them at the highest marginal rate. It is a giant subsidy to some of America's richest men by the working people of America, whose toil often puts them in a higher bracket.

So which side of the equation could you not support, extending relief from extraordinary rates for middle-income families and people facing peril or job pressures or ending the most conspicuous injustices in the tax code that favors the super-rich?

The Republican leader of the House urged his party to stand behind Bush and refuse to vote for a tax increase on the middle class. His “middle class” was a few thousand managers of private-equity and hedge-fund managers.

Boozman and other Republicans and Democrats who vote against the bill count on Americans buying the argument that buyout-fund managers are hard-pressed middle-class Americans or that the loss of the tax break will curtail job-creating investment.

Why not? It has worked in the past. That middle class is a sample of the same middle class that they said benefited from the big tax cuts of 2001-03 that pushed people into the AMT. The middle class was said to be the beneficiary of the dramatically slashed tax rates on capital gains and stock dividends in 2003, which put investment profits in the same bracket as the poorest wage-earners. The latest IRS data shows that actually the lowest half of American tax filers got virtually no savings from those tax cuts (only four-tenths of one percent of the total) and that 74 percent went to the richest Americans who made up only one-half of one percent of taxpayers.

Something tells me that people are not so easily gulled anymore.

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