Democrats hoisted on AMT petard

Michael Barone:

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House Democrats are simmering, but they will probably have to go along. There's a process argument for waiving paygo, which is that future AMT revenues are fictitious because no Congress will allow the tax to go into effect. But it's nonetheless embarrassing for Democrats to renounce a rule they adopted as a guarantee of their fiscal responsibility.

The reason Democrats risked this embarrassment is that the AMT tends to fall on voters in places with high state and local government spending and taxes -- Democratic places like Massachusetts, Connecticut, New York, New Jersey, Maryland and California.

Taxpayers hit by the AMT can't deduct state and local taxes from their federal income tax bill. Sooner or later, that puts downward political pressure on state and local spending. And that, in turn, threatens the vested interest of a key Democratic constituency, the public employee unions. Democratic voters in suburban New Jersey, for example, who feel far from rich, face a substantial tax increase if they're suddenly covered by the AMT. They may take their revenge on Democratic candidates and on New Jersey public employee union members.

The Democrats' need to get rid of the AMT suggests the possibility of broader tax reform. House Ways and Means Chairman Charles Rangel has put forth such a proposal, with a cut in the corporate tax rate and huge tax increases on very high earners. But it's a nonstarter as long as George W. Bush is in office.

Another approach with more bipartisan appeal would be to combine AMT repeal and extension of the Bush tax cuts with a mass repeal of tax exemptions, along the lines of the 1986 bipartisan tax law.

Meanwhile, in this election cycle, the AMT remains largely invisible to the voters who are threatened by it, and it will remain so unless Congress somehow fails to patch it this year. The more visible issue is whether or to what extent taxes will go up in 2010.

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No one should expect Democrats to be bipartisan on taxes. They can take a passive aggressive stance toward the Bush tax cuts, by not allowing a vote to prevent their automatic repeal. This has been their plan since they forced the issue to make them temporary to begin with. They see more votes to be bought with the revenue from the taxes, than lost to the payers. Those forced to pay higher taxes will make up a small percentage of payers, but a large percentage of the revenue. Redistribution of that revenue to constituent groups is what democrat want to use to buy continued power.