Baucus and Birnbaum Go Bonkers Over AMT

December 6, 2007

The AMT debate has a strange effect on normally sensible, smart people.

Senate Finance Committee Chairman Max Baucus (D-MT) just likened the AMT to Frankenstein, saying that “unless we act it will destroy the entire tax system.”

This he says about a tax law whose most drastic provision is to take away the state-local tax deduction, a provision that by that way does almost nothing for people in low-tax states like Montana but subsidizes high government spending in high-tax states.

But you might expect a politician to exaggerate and use colorful literary metaphors. What about one of the nation’s leading business reporters?

In Jeffrey Birnbaum’s Washington Post article on Wednesday, “Tax to Offset AMT Patch Appears Unlikely,” the veteran reporter makes three factual errors in the opening paragraph, all with the effect of exciting alarm.

“During the hectic, closing weeks of this session of Congress, leaders of both parties say they are determined to pass legislation that would prevent 23 million middle-income Americans from being hit with a tax increase originally designed to target only the super-rich.”

Mistake #1 is just a numbers error: 23 million is the number of total AMT filers if the patch fails, not the number of people who’d be spared by the patch. That’s about 18.5 million.

Mistake #2 is to call these potential AMT filers “middle-income” when most are in the top 10 percent of U.S. earners. (The Joint Tax Committee says that 14 million of the 23 million earn over $100,000.)

Mistake #3 is to claim that AMT was originally designed to target only the super-rich. True, the scandal that led to its enactment in 1969 was revelation of some super-rich people who paid nothing, but when congressional tax-writers got down to the details, they deliberately turned it into a much bigger tax on a lot more people. There were only 155 super-rich nonpayers in the 1969 scandal, but 19,000 people had to file AMT returns in 1970.

Of course, we understand the desire of the IRS to prevent 18.5 million more people from filing Form 6251 and the desire of congressmen and taxpayers to prevent the payment of $50 billion more in tax, but let’s tell the truth about who the filers are and why they’re in this potential pool of AMT filers.

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