Wednesday, October 19, 2005

Some of you may remember that the Reagan tax cuts in the 1980's, oriented towards the wealthy as they were, caused the deficit to balloon so fast that they were eventually countered by tax increases in 1991 and 1993. Only, those taxes were done in the context of 'shared sacrifice,' so most working class people, who benefitted little or not at all from the Reagan cuts, had their taxes raised.

So, ever since the Bush tax cuts ballooned the deficit, I've been patiently waiting for the other shoe to drop. And it appears ready to.

It looks like the proposed tax simplification scheme put forward by the President's commission on taxes will make taxes simpler. By raising them on many poor or working class families.

At the heart of the proposal is a move to get rid of the alternative minimum tax (AMT) and replace the lost revenue by doing away with the deduction for state and local taxes.

Now, the AMT is a tax that was originally put in place decades ago to make sure that the wealthy, who could otherwise take advantage of a lot of deductions, wouldn't end up paying nothing. It made sense then, but the conservatives of the day, whether by blind luck or a stroke of genius, wrote in a provision by which the threshhold in actual dollars to become eligible for the tax would not be adjusted for inflation or any other reason. So thirty years later, the AMT is starting to ding a lot of middle class families (20 million this year). Hence, the commission's proposal.

Now what happens then? Well, here is a clue: note that the commission has to recommend replacing lost revenue due to their proposal to ax it. LOST REVENUE. So those wealthy who always paid the tax will now be able to go back to exploiting their loopholes. Their taxes will go down (and if you think a Bush commission will get rid of the loopholes for the wealthy then you make Pinocchio look street smart.)
A few upper middle class families will see small tax cuts as well (although I suspect they still aren't where the cut will offset the increases due to closing the state and local tax deduction). The state and local tax deduction will, however, be widespread and hit everyone.

Of course the higher taxes will make people in the states and localities grumble and vote for more Republicans who promise tax cuts, or at least that is what they hope.

So, the net effect is that for the second time in two generations, Republicans will have been able to bring about a shift in taxation, from the wealthy towards the middle class.

Honestly, didn't you just know something like would eventually be proposed when the Bush tax cuts went through?

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