Thursday, February 24, 2005
The New York Times only hints at the politics behind AMT reform. It does point out that high tax jurisdictions will come under pressure to keep taxes down as their citizens lose federal deductions, and it suggests that higher "after tax taxes" may curtail soaring home values in high tax jursidctions such as New York, New Jersey, Connecticut, and California. The Times does not ask the obvious question, though: If the AMT hammers "blue states" disproportionately (as the NYT demonstrates), will the Republican federal government really want to repeal the tax? Sure, some of these hapless AMT victims may be Republican contributors or happen to vote in Republican congressional districts, and the Republicans have rarely met a tax cut they didn't like, but will that be enough?
If the Republicans do reform the AMT they will accomplish four things, none of which will obviously benefit them politically. First, they will be repealing a tax specifically designed to nail rich tax avoiders. It is inevitable that Democratic candidates and 527s will hammer at that point in the next election campaign with all the deceptive advertising they can muster.
Second, repeal of the AMT would have the effect of shifting wealth from low tax states -- which tend to vote Republican -- to high tax states which almost always vote for Democrats.
Third, repeal of the AMT would make it harder to shrink the federal deficit, which the Democrats will use against the Republicans at every opportunity.
Fourth, the repeal of the AMT will alleviate pressure on local governments, which in my experience are the most wasteful and least accountable level of government that we have.
Fortune seems to agree, albeit with a substantially less nuanced analysis!