TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, February 23, 2007

WSJ Blames Bill Clinton for AMT Mess

Interesting editorial in today's Wall Street Journal:  Bill Clinton's AMT Bomb: Why Millions in the Middle Class May See Their Tax Bill Explode:

As tax season nears, Democrats in Congress are discovering they have an urgent political bomb to defuse--the AMT. The AMT already hits four million Americans, and without new legislation this year it will explode in the pocketbooks of 23 million taxpayers come April 15, 2008.

What's amazing is that many Democrats and reporters are trying to blame this looming tax increase on the 2001-2003 tax cuts. See if you can follow their argument: Taxpayers are obliged to pay the higher of their tax bill under either the regular IRS code or the AMT. And because the tax cuts reduced the regular income tax of the average family by $2,000 a year, more middle-class families are being bounced to the AMT system. Ergo, it's all President Bush's fault.

This logic requires overlooking that a taxpayer's bill under the AMT is still lower than it would have been without the tax cuts. But never mind: The political game here is to use the AMT as an excuse to justify repealing the Bush tax cuts.

In reality, the AMT is one more liberal monster that was created in the name of soaking the rich but has now come back to swallow the middle class. Democrats created the AMT in 1969, amid a political frenzy to capture a mere 21 millionaires who had paid nothing. And the politician most responsible for the AMT's relentless expansion in recent years is none other than William Jefferson Clinton.

Remember the 1993 tax hike that was supposed to fall only on the rich? In addition to raising gas taxes and Medicare payroll taxes and income tax rates, the Democratic Congress that year also raised the AMT: from a 24% flat rate to a dual tax rate of 26% on AMT income up to $175,000 and 28% on AMT income above that amount. It's true that the 1993 bill slightly increased the AMT's family income exemption, but Democrats refused to index those exemptions for inflation. So the combination of the higher rates and the failure to index for inflation has caught more and more middle-class taxpayers in the AMT's maw. From 1992 to 2002, this Clinton stealth tax hike increased sixfold the number of filers paying the AMT, to nearly two million from 300,000.

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Hmmm. I distinctly remember Ken Kies testifying before the Republican-controlled ways and means committee and finance committee projecting the AMT explosion and they didn't do anything about it...

Posted by: D.C. maven | Feb 24, 2007 10:13:17 AM