Congress is back and you know what that means: Time once again for the Democrats to push to expand the State Children’s Health Insurance Program (SCHIP) to up to 400 percent of the federal poverty level (FPL) — a little over $80,000 a year for a family of four.
New York Governor Eliot Spitzer (D) feels so strongly about it he apparently will take the Bush administration to court in order to move forward with his plans.
And while SCHIP is ratcheting up, the Alternative Minimum Tax (AMT), a tax created in 1969 to ensure that wealthy people couldn’t avoid paying taxes, is ratcheting down. More and more taxpayers will soon be considered “wealthy” for IRS purposes and dumped in the AMT category.
That means the two programs, SCHIP and the AMT, are about to overlap. The “poor” making up to 400 percent FPL and couldn’t possibly be expected to pay for their own health insurance without government help will be some of the same “wealthy” people who must pay the “rich man’s” AMT.
How many of these “rich-and-poor” will there be? About 70,000, according to an estimate by the Heritage Foundation.
Because of the way the AMT is structured, it mostly affects those living in states with high local and state taxes. And that tends to be the blue states. According to Heritage, New York will have most of the rich-and-poor (about 15,000), followed by California (11,300) and then New Jersey, though the numbers drop significantly after the Golden State.
Ironically, the states most affected by the expansion of the AMT are those whose leaders tend to rail against the rich not being taxed enough. So we see a little justice here.
The easiest solution to this problem is to not expand SCHIP; 250 percent of FPL should be the top level (and even lower if we had out ‘druthers).
Second, fix the AMT so that it no longer affects people who are clearly middle-income.
Or, best of all, do away with the AMT or transform it, as Wall Street Journal editorial writer Steve Moore has suggested, into a flat “maximum tax” and let people choose between that and the current income tax, whichever has the lesser impact.
Doing that will likely cost the government some revenue (unless economic growth offsets those loses), but at least the government won’t be handing money out with one hand (SCHIP) while it takes it back with the other (AMT).