“Carthage must be destroyed.”
— Cato the Elder
by Rod D. Martin
December 8, 2005
Thus did Cato, the great Roman senator and orator, conclude each and every speech of his career before the Senate.
Archeologists understand his wrath.
As they’ve confirmed, Carthage was a city that sacrificed its children to terrible gods, an empire whose very existence threatened to engulf Rome’s.
Today, our country faces a monstrous tax that is not-so-slowly devouring not just our children, but us first, if we don’t stop it now.
Fortunately, we have two possible Catos — Mike Crapo (R-Idaho) and Max Baucus (D-Mont.) — in our Senate’s well who are calling for its demise.
Their bill would do what President Bush’s tax reform panel and so many others have recommended — wipe the abominable Alternative Minimum Tax (AMT) off the books.
The AMT was invented in 1969 as a trap for just a few thousand wealthy people who, in certain leftists’ opinions, “weren’t paying their fare share.” It forces income earners to re-compute their tax deductions if the IRS decides they are “too numerous.”
You read that correctly.
If you’ve taken your deductions fairly and squarely and Washington dislikes the result, then guess what? The IRS gets a second bite at your money.
Unfair? You bet. It’s possibly the most unjust tax in America. But it gets worse.
Not only is the AMT inherently unfair for everyone, it’s a uniquely looming threat for middle class breadwinners and their families. Since it was never indexed for inflation, and because deductions have risen over time, the number of middle-class Americans who will be subjected to it — people who were never supposed to face it at all — will skyrocket over the next few years.
So a tax originally meant to “catch” 155 members of the “super-rich” has morphed over time into a truly rapacious monster. By 2003, millions were forced to pay, purely due to inflation. And while in that year 56% of AMT taxpayers had income exceeding $200,000, that burden is shifting fast. By 2010, only 10% of Americans paying the AMT will be making over $200,000, while fully 53% will have income below $100,000.
In other words, the AMT’s impact is shifting inexorably away from the rich to the middle class. And the percentage of federal revenues coming from AMT — projected to hit a whopping 60% by 2011 — is becoming so great that if something isn’t done now, it will become very hard indeed to do it later.
As this tax begins to wash over the middle class like a tsunami, it will destroy incentives to work, save, and invest.
And then there’s the AMT’s legendary complexity.
According to Senator Crapo, the IRS admits it takes 63 hours on average to calculate one person’s AMT liability.
Sixty-three hours! And an army of accountants for you to pay too, while they figure your radically higher new tax bill.
It’s not just individuals who get hit either: small businesses are in the cross-hairs too. Depreciation of capital equipment tends to trigger AMT liability, which means our capital-intensive industries get hit hardest. From farms to factories, thanks to the AMT, such firms labor under the worst capital-cost-recovery system in the developed world, costing countless jobs and driving employers overseas.
Cato would say it best: the AMT must be destroyed.
But in response, the AMT “empire” is striking back.
The forces of reaction — perhaps best exemplified by the Washington Post — are screaming that abolition will “cost” hundreds of billions in lost revenue, as if it is a gift from a benevolent parent to children.
Aside from its inherent paternalistic, statist arrogance, there remain two huge problems with this argument.
First, the Post’s writers fret about the deficit, yet utter not a word for cutting spending.
And second, they completely ignore that removing this ugly albatross from the neck of American productivity will generate more, not less, revenue, as work, savings, and investment are unleashed.
For years, my Vanguard PAC has been an organizational member of Congress’s “Abolish the Alternative Minimum Tax” Caucus. Our board member Grover Norquist, President of Americans for Tax Reform, has fought long and hard for this reform. And yesterday’s House vote, indexing the AMT to inflation, was a great leap in the right direction.
But we need more. We need Congress to listen to Senators Baucus and Crapo — and to the American people — and end this stalking threat once and for all.
Make no mistake: We must act fast to abolish the AMT for the sake of our economy, our jobs, our productivity, and the next generation.
Clearly, the AMT must be destroyed.