Obameter #40: Fixing The Alternative Minimum Tax

(WTC: Remember and Rebuild.)

In 1984, Secretary of the Treasury Donald Regan asked President Ronald Reagan what General Electric, Boeing, General Dynamics, and more than 50 other big companies had in common. Reagan replied that he didn't know. Regan told him that they pay no taxes at all, and provided proof. Both men agreed this was wrong. In the 1984 State of the Union address, Reagan announced his intention "to simplify the entire tax code so all taxpayers, big and small, are treated fairly."

In 1986, the Reagan Administration along with allied Democrats from the Legislature passed the Tax Reform Act of 1986, which lowered tax rates while closing numerous tax loopholes and simplifying the tax rules. It also set an Alternative Minimum Tax, insuring that rich companies and individuals could not escape paying a certain level of taxes no matter how creative their use of tax shelters and tax write-offs.

However, unlike the standard tax brackets, the requirements of the alternative minimum tax were not bound to inflation. As the value of the dollar shrinks over time, more and more of the middle class began to fall under the definition of "rich" used by the alternative minimum tax. Legislatures have frequently passed AMT "patches" to exempt the middle class from the tax for a year or so, but a permanent fix was considered too expensive to the annual budget.

During the 2008 campaign, Obama and McCain both promised to make the 2007 patch permanent and index the AMT to inflation, thus preventing it from gradually covering individuals with lower and lower income levels. The permanent fix was added by the Senate to the The American Recovery and Reinvestment Act of 2009 (the Stimulus Bill) in negotiations with Senate Republicans whose votes were needed to pass the overall bill. Three Republican Senators, Susan Collins of Maine, Olympia Snowe of Maine, and Arlen Specter of Pennsylvania, were convinced by these negotiations and the ARRA passed. They are the only Republicans in the House or the Senate to vote for the ARRA package.

$3,600b 2009 Federal Budget

Previously discussed wasteful spending

Previously discussed worthwhile spending

$70b Alternative Minimum Tax reform

American Reinvestment and Recovery Act of 2009

For Obama, that means promise kept. For Republicans, it's a depressing sign of how little influence we have in government today; even with 92% of Republicans in the Senate and 99.4% in the House opposing the ARRA, it still passed. I don't know what else was involved in those Senate negotiations, but I hope one universally supported issue point was not the purchase price of three Republican Senators' support for such a ridiculously huge chuck of government spending as the ARRA ($787 billion).

I do support the AMT changes as promised and delivered, so thumbs up for Obama on that point. The massive stimulus bill of which it was an influential part has earned my disgust and opposition. Since it is far too complex and inclusive to ever be covered as an Obama promise separately, I'm going to take this time to rant in address of the ARRA itself directly.

There are parts of ARRA I like and parts I don't like. Virtually anyone would be able to say the same thing. It has hundreds of individual programs all passed together as one incredible, huge, diverse behemoth measuring three quarters of a trillion dollars. It's five times the cost of the Bush Administration's stimulus bill of 2008, and twice the size of all the Homeland Security Appropriations Acts of that administration combined (at the time, Democrats in the House condemned the Homeland Security Act for changing too much with one monolithic bill), and it's larger than the entire US Federal Budget of 1982. It contains more than 140 separate programs that could not be addressed individually, but only confirmed or rejected as a massive whole. It's complexity ensures that everyone who voted for it voted for at least one program they do not approve of, and everyone who voted against it voted against at least one program they support. It's an intentional evasion of consideration of these programs individually on their own merits, and as such is a circumvention of critical analysis. It is wrong to circumvent critical thinking. The bill is a monument to compromised principles and deferential concession. It was passed almost exactly along party lines, also making it a monument to legislation by brute-force partisanship. Regardless of the value of the individual programs, passing them as a monolithic whole was bad governance and deserves condemnation.