Confronting His Monster
The House Ways and Means Committee, chaired by Rep. Charles Rangel, held a hearing this month supposedly about simplifying the tax code for middle income families. What it really was about was a monster Mr. Rangel created, fed, defended, and now has turned on its master: the Alternative Minimum Tax. The AMT was created in 1969 in response to about 150 taxpayers not paying any income tax despite having very high incomes. This tax was changed around a bit throughout the 1970s, and found its modern form in 1982. That year, Mr. Rangel voted for an AMT rate of 20%, which still only affected several thousand taxpayers.
In 1986, he voted to raise the AMT rate to 21%, and several thousand more taxpayers were affected. Mr. Rangel did not vote for an increase in the top rate to 24% that followed. But he joined President Clinton in raising the top AMT rate all the way to 28% in 1993.
In 1999, Mr. Rangel voted against repealing the AMT beast and slaying it forever. Had that bill become law, the AMT would have been permanently repealed on December 31, 2007 — this year. Instead, Mr. Rangel is forced to deal with a monster of his own creation. The monster has gotten hungry. According to official estimates, failure to restrain the AMT will lead to 27 million taxpayers having to pay this tax. A tax that would be dead, gone and buried this year if not for President Clinton and Mr. Rangel.
The irony is almost poetic. The typical AMT taxpayer lives in a state like Mr. Rangel's New York, Nancy Pelosi's California, and Robert Menendez's New Jersey. They have a jumbo mortgage, sky-high state income taxes, a couple of kids, and a six-figure income. For the most part, these are the inner-suburb-and-urbanite, center-left voters who supported the AMT authors in the first place. It is unlikely that there is a thousand dollar contributor who is not paying the AMT.
Now there is considerable pressure on Mr. Rangel to help these constituents. So, he has been supporting a plan to eliminate the AMT — and raise taxes on everyone else to pay for it. Under the Rangel plan, small businesses and wealthy individuals would pay a "surtax," everyone would pay a higher capital gains rate, and everyone's pension would be taxed in the form of treating "carried interest" capital gains from private equity funds, which defined benefit pension plans increasingly use, as ordinary income.
He has to find a way to "pay" for AMT repeal because of the return of PAYGO rules with the new Democrat majority. You can't cut any taxes, according to these bizarre rubrics, without raising other ones.
If Mr. Rangel can't find enough tax increases to kill the AMT, he can try a "patch" that will keep the AMT-paying households at "only" several million taxpayers. This requires fewer tax increases, all of which will be permanent, in order to pay for only one year of this AMT "patch."
There is a better way. Senator Grassley, the ranking member on the tax-writing Senate Finance Committee, has a good way of describing the AMT: It's a mistake. It is not doing what it was intended to do. Instead, thanks to proper care and feeding by zookeepers, the AMT beast is threatening to ensnare tens of millions of American families.
To paraphrase Mr. Grassley, "you don't ‘fix' a mistake, or ‘patch' a mistake — you correct the mistake." In this case, that means a clean kill of the AMT. Revenue losses shouldn't be counted, since the AMT mistake is yielding a windfall o f income never intended by policymakers.
There is legislation to do just that in both chambers of Congress. This legislation is not sponsored by the likes of Mr. Rangel, who ostensibly wants to help AMT taxpayers, but by conservative Republicans who want to kill the AMT because it's the right thing to do. The "Individual AMT Repeal Act of 2007" has been introduced in the House, as H.R. 1366, by Rep. Phil English of Pennsylvania, and has 54 cosponsors. In the Senate, it's sponsored by none other than Mr. Grassley as S. 55. Quite simply, it would fully and totally repeal the AMT immediately.
Some prefer a more incremental approach, which is also fine. Forty percent of the AMT problem would be eliminated if Congress were to simply repeal the Clinton AMT that Mr. Rangel supported. That is, Congress could simply undo the AMT tax hike that was part of the 1993 Clinton tax increase. Doing that would take the top AMT tax rate from the current 28% to a lower 24%.
The "AMT Rate Reduction Act of 2007" does just that and reduces the current top rate of 28% to 24%. It's sponsored by Rep. Ed Royce of California and Eric Cantor of Virginia in the House as H.R. 2253 and has 20 cosponsors. In the Senate, it's sponsored by Senator Specter as S. 734.
In politics, you have to wear bifocals — long and short sight. Repealing the Clinton AMT may be the best we can do this year, so supporters of full AMT repeal should also be supporters of Clinton AMT repeal.
In any event, taxpayers should see through Mr. Rangel's bluster. He's not riding in on a white horse, saving the middle class from the AMT. Rather, he's desperately running through the countryside, trying to get everyone to forget that the Frankenstein monster was one he helped create.
Mr. Norquist founded Americans for Tax Reform in 1985. He is the author of the forthcoming book "Leave Us Alone."
