Columns » Ernest Dumas

The dirty tax secret

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If you're among the angry hordes who hate the federal income tax code, thanks to your hero George W. Bush you likely won't have to deal with it much longer. Trouble is, you're not going to like what replaces it. It's the alternative minimum tax, and it's the dirty little secret behind the great Bush tax cuts of 2001, 2002 and 2003 and the one he's trying to push through Congress before the election. Most Arkansas families with children - about all of them except the poorest and the very richest - will soon be paying a tax that originally was intended to catch America's richest tax avoiders. If you're rearing children and your family pays Arkansas taxes on a modestly good income, and especially if you have a litter as big as a Republican congressional candidate, you might have detected a small reduction in your federal taxes. Enjoy it because Bush is going to take it back from most of you with the alternative minimum tax. And the bigger and sicker your family the quicker and the more you'll pay. Chances are that you will be paying the AMT - you should call it a tax increase - because President Bush wanted to give mammoth tax cuts to the very rich. Most people, it seems, are philosophical about the fact that more than half of the cumulative Bush tax cuts have gone to the richest 1 percent of Americans even though they pay only about 25 percent of federal taxes and have benefited from the greatest surge in concentration of the nation's wealth since the 1890s. They may change their minds when the big tax bills begin to hit in the next five or six years. People were not nearly as understanding back in 1969, when this story begins. Two days before President Lyndon B. Johnson left office, his treasury secretary artlessly mentioned to a congressional committee that 155 rich Americans paid no income tax in 1966 although their incomes exceeded $200,000 (the equivalent of $1 million today). Congress was buried under an avalanche of mail from people who were already sore because they were paying a surtax to finance the Vietnam War. (George Bush just puts the war on the tab.) Congress and President Richard M. Nixon responded by enacting the alternative minimum tax, which was supposed to see to it that the very rich couldn't come up with enough exemptions, credits and deductions to avoid taxes altogether. But the AMT is not indexed for inflation, unlike the regular income tax, and it has reached steadily deeper into the middle class. Bush sped the process. Slashing the top marginal tax rate, cutting taxes on capital gains and dividends, eliminating taxes on rich estates and giving new tax favors to corporations all helped the rich so he had to add a number of benefits that reached down to middle-class families, like expanded child tax credits and marriage-penalty relief. They enabled him to claim that his tax cuts helped most people, not just the rich, but he didn't tell them they also carried the seed that start raising middle-class taxes. The benefits trigger the alternative tax. The president never mentioned the AMT, although his chief economic adviser, who spent two yeas drawing up the 2001 tax cut, acknowledged that he was aware all along that it would push the alternative tax on growing numbers of middle-class families, chiefly those with children, those with high medical expenses and those living in states with income taxes. Bush's 2003 tax cut included a little provision that diluted the AMT's effects on returns that many people filed this year so that there wouldn't be an angry contingent this election year. But forget your situation. Here's the scary part. The number of families who will be shifted off the regular tax system and onto the AMT will grow exponentially every year starting in 2005 and it will soon just be too big to fix. The Urban Institute's Tax Policy Center calculates that in six years 97 percent of families with two children with incomes between$75,000 and $100,000 will be paying the AMT rather than the much smaller tax they would owe under the tax code. Many with incomes as low as $30,000 will be paying it. But 130,000 very rich families will disappear off the rolls. In the end, about the only people who will keep the benefits promised by Bush in the great tax-cutting party will be the top of the political donor class, the super rich. If Bush succeeds in making his tax cuts permanent, the fiscal impact will worsen. Here is the dilemma that Bush or John Kerry and Congress - and all of us really - will face. If they repeal the AMT or lift it from middle-class taxpayers, the loss of revenue - an estimated $600 billion by 2010 - it will turn the budget deficits created by Bush from staggering to stupendous. The AMT masks the effects of the Bush deficits, which this year amount to only about $700 billion exclusive of the short-lived Social Security trust surplus. Patriotism requires us to hush about it until after the election. Trust Bush to fix it, just like he has Iraq.

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