Taxing the Red to Support the Blue?
Now that the Democrats control the House, Charlie Rangel will be in charge of writing tax legislation. (That's a sentence I'd hoped never to have to write!) As you've likely heard, he and other Democrats are talking about giving tax relief to millions of upper-income taxpayers by "fixing" the alternative minimum tax. There is a certain irony in this, perhaps, but I don't suppose many people still harbor illusions about who the Democrats' real constituencies are. It's been commonly remarked in the press, as in the Boston Globe article linked above, that:
The focus on the tax is hardly surprising, given that victims of the tax have been concentrated in high-cost urban areas such as Washington, New York, and San Francisco -- places that tend to vote Democratic.
Over at the Power Line Forum, however, Notorious B.O.B. argues that the truth is worse than is being reported: if the AMT "fix" is to be revenue neutral, as the Democrats insist, the effect can only be an increase in Red State taxes to finance tax cuts that are predominantly in the Blue States:
Assume the $250K “rich” family in MS has deductible taxes of $25K and mortgage interest on the McMansion at $15K; for the NY family, the taxes are $45K and the mortage interest on the SAME McMansion is $25K...The MS family would pay slightly more in Fed Income tax, but BOTH would pay at AMT rates…In order to CUT the AMT and maintain REVENUE NEUTRALITY, Charlie R. would have to INCREASE regular tax rates....both familes would have AMT taxes reduced, and both would have regular taxes increased compared to the old tax regime. However, both would no longer pay rthe AMT tax..they would both pay the regular tax which would now be the “higher of”....but the EFFECT would be that the MS families regular (and now applicable) tax would be much greater than their old AMT tax...while the NY family’s new regular tax would be LOWER than their old AMT tax!!!...In my simple example, there would be an increase of about 7.5% for the MS family and a corresponding decrease for the NY family (to keep revenue neutrality at the federal level).
That looks right to me. I'll be curious to know whether our readers can find a flaw in B.O.B.'s logic. If you want to comment, go here.
