Alternative Minimum Tax (AMT) – A Lesson in the Failures of Class Warfare
Posted on February 7, 2012 by JL
President Barack Obama has signaled in this 2012 State of the Union address that his re-election campaign will be centered on class warfare. Among the many ideas being floated in President Obama’s war on success is his desire to tax individuals earning $1 million or more at a minimum of 30% under his “Buffett rule“. It should be noted that populist political gimmicks like this have been tried before; the results have been spectacular failures.
There’s a saying, “Those who cannot remember the past are condemned to repeat it.” Perhaps President Obama and the Democrats should pay heed to that. They need look no further than the Alternative Minimum Tax to see the consequences of this type of class warfare.
The Alternative Minimum Tax started as just the Minimum Tax in the Tax Reform Act of 1969. This tax was conceived to address the “inequity” of 155 high-income houses who were able to reduce their tax liabilities to zero through deductions, tax credits and other tax benefits. Since its inception, the Minimum Tax has evolved from an add-on tax to a parallel tax system in what is now known as the Alternative Minimum Tax (AMT). The AMT was formalized by the Tax Equity and Fiscal Responsibility Act of 1982. Because the exemption in the AMT is not indexed to inflation, the albatross that is the AMT, which was designed to target very high-income households who pay little tax, now affects millions of middle-income families. Congress has been forced to pass multiple patches to the AMT to prevent these middle-income households from being crushed by a high and unreasonable tax burden relative to their income.
When Congress fiddles with the tax code and passes tax reform on regular income taxes, the AMT is often ignored like a red-headed step-child. Only when the patches expire is Congress forced to deal with this unnecessary, complex parallel tax system that drags on the economy. The “good intentions” of addressing perceived tax inequity has led to a burden on millions of middle-class families and a drag on the economy. Middle class families and small businesses are forced to do their tax planning twice if they are near the thresholds for the AMT. The AMT does not allow many deductions so taxpayers can be forced to pay a staggering high tax bill that is especially problematic for families that live in desirable metropolitan areas where incomes are high because the cost of living is high. For example, a $200,000 year salary may provide someone with an upper-class lifestyle in Omaha, Nebraska where hypocrite Warren Buffett lives, but that same salary would only provide a middle class lifestyle in New York. Yet, that New Yorker may be subject to the AMT and be forced to pay higher taxes that he or she can’t afford.
All because of people like President Obama who think that the government should step in and engage in class warfare to address “the inequity” of financial success and income disparity. The consequence of this type of class warfare is that the “solution” often ends up being a burden and liability for the very people whom the solution is trying to help. Exhibit A – the Alternative Minimum Tax. Rest assured solutions like the AMT or the “Buffett rule” are merely the first step in the liberal’s plan to redistribute the wealth of the country.
