It’s too soon to know if their words will be followed by actions, but some of the Democrats’ words sound pretty good.
Last week, the future chairman of the House Ways and Means Committee, Rep. Charlie Rangle (D-NY), said one of his top priorities will be to reform the Alternative Minimum Tax (AMT).
The AMT was passed in 1969 as a way to ensure that wealthy taxpayers couldn’t avoid paying taxes. Under the then-steeply progressive income tax rates—strongly supported, let us not forget, by Democrats—wealthy people often managed to use legitimate tax breaks to avoid paying any taxes. The AMT was meant to fix that “problem.”
But a funny thing happened on the way to a rapidly expanding economy—a result of Reagan-era economic and tax policies: Millions of middle-income people, especially those households with two incomes, started falling prey to the AMT.
Left unchanged, the AMT will affect an estimated 23.5 million taxpayers, up from an estimated 3.5 million this year—and only 155 its first year.
Although Republicans have been calling for AMT reform for years, they didn’t do it when they were in power. Now, Charlie Rangle says he will. And he will likely get some help from Sen. Hillary Clinton, another New York Democrat, who has also complained about the AMT.
So, are Democrats co-opting the Republican message of the need for lower taxes?
Count us as skeptical.
What’s really happening is that high-income areas tend to be high-cost areas. A six-figure income goes a lot farther in Topeka than New York City. Mr. Rangle may have a lot of constituents who make a lot of money, but they also have to spend a lot of money on housing and other necessities. In other words, they have high incomes, but they aren’t rich.
Ironically, the same thing is happening in a number of blue-state strongholds, like San Francisco, Los Angeles and Boston.
So we may very well see tax reform, not because the Democrats have discovered the wisdom of supply-side economics or the Laffer Curve, but because it’s in their political self-interest.
That’s OK. Sometimes you can hit a straight lick with a crooked stick.