Commentary: Tax Hike Aimed at New York?

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Today’s Republican Congress is known for tax cuts, not tax hikes. But WNYC’s Brian Lehrer says a tax bill passed by the House this week could mean a big income tax increase in 2007 aimed squarely at New York, New Jersey and Connecticut.

LEHRER: At issue is something called the Alternative Minimum Tax, a good idea that may be about to go terribly bad. The Alternative Minimum Tax, or AMT, was first enacted in the late 1960s to stop the richest few Americans from weaseling out of their income tax burden. It required that these very high earners pay a certain minimum income tax even if they had enough clever tax shelters to bring their bill to zero. So far so good.

But the Alternative Minimum Tax law has a problem. It was not indexed for inflation. Therefore, says Robert Bixby of the bipartisan deficit hawk group The Concord Coalition…

BIXBY: So as the economy grows and incomes grow, more and more people who certainly don’t consider themselves fat cats or tax evaders get subject to the Alternative Minimum Tax.

LEHRER: So for example, someone with an annual income considered sky high in 1969 – say, $75-thousand - could soon be subject to the tax even though that same income is considered middle class today, especially around here, given the cost of living. People making that little could become ineligible for the dependent child tax credit and lose a lot of their home mortgage interest deduction, two staples of pro-family, pro-homeowner American tax law.

This week, the House by a near unanimous vote agreed to delay the AMT’s bracket creep by one year. But don’t be fooled. The original version of the House bill would have meant an income tax hike for most married couples with two children making as little as 75-thousand a year. In other words, an income tax hike for middle class families, even as tax cuts for the rich were being made permanent. And some House conservatives WANT it to do exactly that – to soak the middle class - for ideological reasons.

On my weekday call-in show this week, tax specialist Dan Mitchell from the conservative think tank The Heritage Foundation told us he’d like to abolish the Alternative Minimum Tax altogether. But in the meantime, he’s glad this tax will hit states with Democratic majorities like New York, New Jersey and Connecticut particularly hard, right in their middle class hearts.

MITCHELL: And so you will find more voters being hit by this tax in Hollywood and Manhattan than anwhere in the country. And that’s of course precisely why you have seen Democrats like Schumer and Rangel and Hillary Clinton screaming bloody murder about it. I’m amused by the sort of born-again tax-cutting that we’re seeing out of some of these people who’ve never met a tax increase they didn’t like.

LEHRER: Does that mean Mitchell and some of his ideology-mates in the House want to purposely overtax the middle class in democratic-leaning states to generate more support for tax cuts for the rich – what he calls tax reform? In a burst of ideological candor, Mitchell admitted that is precisely the idea:

MITCHELL: I have no doubt that Republicans on the hill are seeing this as a nice problem in that it’s going to create a lot of animosity to the tax code and it might be just the kind of thing that brings Democrats to the table to talk about fundamental tax reform.

BRIAN: Like Dan Mitchell, President Bush’s tax reform panel has proposed ending the alternative minimum tax altogether, including on the very rich. So while the House may have voted 414-4 this week to delay the AMT debate, it will be back next year. If you’re a middle class taxpayer, be prepared.