(unhappy) surprise

A $2,000

December 09, 2007

For years, Congress and the White House have been playing chicken with an ever-growing tax bite known as the AMT. It looks like either unsuspecting middle-class taxpayers or a new commitment to fiscal discipline will lose out.

Republicans who are chortling, though, at a dilemma that primarily confronts Congress' Democratic majority would be wise to look at who get hurts by their failure to cooperate. If taxes for this year suddenly go up by an average of $2,000 each on 19 million households, angry Americans will hold everyone in Washington to blame. What's more, the goal of ensuring that tax cuts don't have to be financed by adding to the national debt is simple common sense that benefits the short-term economy as well as taxpayers of the future. Republican presidents will be grateful.

One way or another, though, Congress must come to the rescue of these taxpayers. It's hardly fair to penalize them for Washington's dysfunction.

The alternative minimum tax was approved four decades ago so that very wealthy people with lots of deductions didn't escape taxes altogether. But it was never indexed to inflation. So a tax bite that originally applied to a handful of households now reaches about 4 million. With no further action by Congress, the number will swell this year to at least 23 million.

Fixing the problem permanently would cost $1 trillion - about the same as the Iraq war. For years, Congress and the White House have been simultaneously building that income into their budgets while avoiding actually collecting it through a series of one-year patches. Such a fix would cost $50 billion in budgeted revenue for 2007.

This year, the Democratic majority has been trying to avoid spending beyond the government's means by offsetting such losses with other sources of revenue. The House came up with a good trade-off. It would close a loophole that allows high-income private equity fund managers to pay taxes at a lower rate than salaried workers.

Thanks to heavy lobbying by the fund managers, though, senators in both parties rejected the plan. Many Republicans object to the notion that a tax cut should ever have to be "paid for." But they didn't curb other government spending during their years in charge, either.

Maybe for starters, the lawmakers should all get together and forsake their billions in pet project earmarks. That would at least make a good down payment.

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