November 13, 2006

Well, THAT Didn’t Take Long: Rubin Wants Tax Hikes, Dems Want Tax Cuts Targeted to the Blue-State Rich

Filed under: Economy,Taxes & Government — Tom @ 10:03 am

Item from Bloomberg:

Rubin Urges Democrats to Raise Taxes to Reverse Budget Deficit

Interesting, in light of this in the Washington Post (HT Surly Don Surber; as an aside, I really have to wonder how this plays with the Democratic Underground/Daily Kos base):

Alternative Minimum Tax Targeted
Saturday, November 11, 2006

Democratic leaders this week vowed to make the alternative minimum tax a centerpiece of next year’s budget debate, saying the levy threatens to unfairly increase tax bills for millions of middle-class families by the end of the decade.

The complex and expensive tax was designed to prevent the super-rich from using deductions, credits and other shelters to avoid paying the Internal Revenue Service. But because of rising incomes, the tax is expected to expand to more than 30 million taxpayers in 2010 from 3.8 million mostly well-off households in 2006.

….. The focus on the AMT is hardly surprising, given that victims of the tax have been concentrated in high-cost urban areas such as Washington, New York and San Francisco — places that tend to vote Democratic. Rangel, Hoyer and Nancy Pelosi (D-Calif.), the presumptive House speaker, all represent states hit hard by the AMT, which is sometimes called the “blue-state tax.” To map states with the highest concentrations of AMT taxpayers is to draw bull’s-eyes over California and the Northeastern seaboard.

Locally, an estimated 240,000 families and individuals in the District, Maryland and Virginia will have to pay the AMT at tax time in April, according to projections by the nonprofit Citizens for Tax Justice. That is an increase of nearly 100,000 local families since 2003.

….. The impact is harshest on taxpayers with annual incomes of $100,000 to $500,000. The truly rich typically are not affected because their regular tax rates already are higher than under the AMT.

Don’t get me wrong; I think the AMT should never have existed, and should be repealed immediately. But what is, uh, “rich” about all of this is that for all the class warfare rhetoric we’ve heard, the very first place the new congressional majority wants to go with “tax reform” is to lower taxes on “the darn near rich through the nearly richest” who “just happen” to be mostly in Blue states.

To get an idea of who s really benefitting — In this comment at a post back in May, I noted the following IRS break points for reported Adjusted Gross Income in 2003:

- Top 1% — $295,495
- Top 5% — $130,080
- Top 10% — $94,891
- Top 25% — $57,343
- Top 50% — $29,019

AGI can be a lot less than true gross income because of deductions for things like IRA and 401(k) contributions, one-half of Social Security for the unemployed, and a lot of other items. On the other hand, AGI ignores income that isn’t taxed or whose taxation is deferred, such as interest on state and municipal bonds, untaxed capital gains, and the like. So for simplicity, let’s ignore the differences between “real” income and AGI. Throw in a few years of inflation, and the Top 10% break point is probably about $105,000 now.

$100K doesn’t buy what it used to, but calling it “middle class,” even in the most expensive cities in the US, is obviously a ridiculous stretch. After the inflation adjustment I just made, anyone making over $100K is in the top 11% or so of all earners. $500K? Sorry, that’s easily in the top 0.5%. Even after considering the high cost of living in places like New York City and Metro DC, no one getting a benefit from AMT reduction would be below the top 20% in terms of true standard of living.

Democrats want tax cuts for the Blue-State rich, with the exception of the very, very richest. But Bob Rubin wants to increase overall taxes. Thinking like a static-analysis Beltway politician, I would say something’s gotta give, and would have to ask who is left to shoulder the burden of the $50 billion AMT tax reducton just described (that’s the one-year “cost” next year noted much later in the WaPo article), PLUS the amount by which Rubin wants to raise taxes.

Ah, but thinking like a supply-sider, I’d be willing to take a “chance” that the tax cuts would more than pay for themselves with extra revenue from more economic activity. In this case, it would be a “chance” because, unlike cap-gains and dividend tax reductions, there’s not a direct behavioral link showing what might happen if the AMT is reduced or eliminated. But I’d call Bob Rubin’s and Nancy Pelosi’s bluff — Hold out for total and immediate repeal of the AMT, but reject any “offsetting” tax increases. See how the Blue-State supporters lobbying for AMT “reform” react when they see that their tax cut may not materialize.

Cross-posted with some revsions at


UPDATE: It took the Post 15 paragraphs and a jump to the second page of the online link before the $50 billion “cost” of the AMT “reforms” being considered was mentioned, and the article is totally devoid of the class-warfare rhetoric invoked in any discussion of tax cuts that were considered or passed during the first six years of the Bush Administration. Who knew that the WaPo’s view of the world had room for acceptable “tax cuts for the rich”?


1 Comment

  1. Economics and Social Policy XXI…

    The November 19th edition of E&SP is up….

    Trackback by The Boring Made Dull — November 19, 2006 @ 1:05 pm

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