The Alternative Millionaires' Minimum Tax
President Obama last night unveiled a new twist on an old idea in his State Of The Union address to Congress -- limit the loopholes and tax giveaways that very wealthy people use to reduce their taxes far below the rate honest workers pay. Obama called for a minimum tax rate of 30 percent on income over one million dollars. To some, this sounds like a radical idea, but it really isn't. It is merely a refinement of a part of the tax code that has been with us for decades: the Alternative Minimum Tax.
The A.M.T. was enacted for precisely the same reason Obama is calling for a 30 percent tax rate on every dollar made over and above the first million per year -- fairness. The ultra-wealthy have always been able to afford spending money to use tax shelters and tax attorneys to move their dough around so they avoid paying what they should be paying -- the same rates everyone else pays. So the A.M.T. was introduced to fix the problem. If you make a substantial amount of money, you must figure your income taxes two ways: the traditional way, and using the A.M.T. worksheet. Whichever's higher, in essence, is what you must pay (if you fall under the rules for using the A.M.T.).
Now you may be thinking, "I've heard of the A.M.T. before... something about Congress 'fixing' it...." This is where we get into some massive budgetary fiction, or (if you prefer) blatant hypocrisy by our lawmakers (of both parties, it bears mentioning). The problem stems from the fact that the A.M.T. has not been truly modernized in quite a while. The income limits it set when it was enacted covered people who made a lot of money back then -- but when you fast-forward three or four decades, the same dollar amount now regularly hits people in the middle class (and really hits people in the upper middle class), rather than its intended target: the truly wealthy.
This is where the hypocrisy comes in. Why don't the folks in Congress just up the limits? It's common sense, right? If there's a problem with the dollar limits to the A.M.T., then adjust the limits and it works as intended again. Simple!
Well, that's what does indeed happen. Every single year, like clockwork, Congress passes an "A.M.T. fix," usually late in December when they think nobody's paying attention. They do not do this by honestly fixing the law, but instead by only carving out an exemption for a single year. There's a reason for this, which is where the budgetary fiction comes in. When Congress puts together a federal budget, they project it out for ten years into the future. These projections are nothing more than smoke and mirrors to begin with, because nobody -- that's nobody, no matter how many economic degrees they have -- can accurately predict the future, whether economically or otherwise. Putting that fiction aside, though, the A.M.T. is a fiction on top of this basic budgetary fiction. Because the A.M.T. -- if not "fixed" -- is scheduled to take in billions and billions of dollars in tax revenue. To put it another way, by using the outdated A.M.T. formula in the ten-year projections, it makes the budget picture look rosier than it actually is. If the A.M.T. were permanently fixed -- instead of year-to-year, the way it is done now -- then the deficit projections would be a lot larger. The fact that this is closer to actual reality matters little, because most people aren't aware of the fiction and the hypocrisy Congress regularly operates under.
So we continue "fixing" the A.M.T., and Congress pretends that they're not going to fix it for the next nine years, and the budget numbers are easier to work with -- even though Congress does indeed fix the A.M.T. each and every single year, and the tax revenues in the budget projections never actually appear. Once again, to be clear: both political parties are in on this scam. They both use the fictional numbers, while they know full well it is nothing more than a pipe dream that this money will ever materialize in the U.S. Treasury.
Which brings us back to Obama's suggestion in the State Of The Union. While to some it might sound like a brand-new program, it really isn't. It would just be beefing up and modernizing the A.M.T. so that it works as it was originally intended -- to make sure the ultra-wealthy are paying the same rates as everyone else. But there's a golden opportunity here as well, because Obama's plan would bring in more money -- actual, real money and not fictional, budgetary-dream money. Because more money would be coming in, it would be the prime time to institute a permanent "fix" on the A.M.T. -- because the new income could balance out the "loss" of the fictional income in the ten-year budget projections.
It is silly and (at its core) dishonest to "fix" the A.M.T. every single year as if it is some sort of emergency situation. It should be fixed once and for all. If Obama's new "Alternative Millionaires' Minimum Tax" were combined with such a permanent fix, it could also be a lot easier to sell politically, since it would be "lowering taxes" on millions of households (in the ten-year projections), while only forcing a relative few households to "pay their fair share, just like everybody else." I realize this is no more than political rhetoric, and I also realize the chances of Obama actually passing this scheme are extremely low this year.
Whether it passes or not, it's an idea that most Americans are going to agree with -- even more so if the threat of paying the A.M.T. is removed entirely for (say) all households making less than $250,000 (Obama's usual dividing line for the middle class). End the A.M.T. on the middle class, and beef it up considerably on the millionaires and billionaires. Tying the two together is the logical way to go, and it also has the benefit of removing the yearly hypocrisy over the fictional budget numbers for nine out of ten of the projected years. It's time to end this scam -- perpetrated by both parties -- once and for all. Obama should go ahead with his A.M.M.T., and at the same time reform the A.M.T. so that Congress won't have to perform this fudging of reality every single year.
-- Chris Weigant
Cross-posted at Business Insider
Cross-posted at The Huffington Post
Follow Chris on Twitter: @ChrisWeigant
Why the hell can't you "tax experts" ever get off your ass and explain, or at least realize, that the biggest issue in taxation is HOW you make your money.
Your article, as much as I read of it, doesn't even mention this. Nor do 90% of articles on taxation mention it.
Does the ATM -- before, or as Obama proposes -- apply to all income?
And why the hell even have a term "capital gains"? LEt me answer that -- to give it special treatment.
Oh spare me this shit about "investors" and "ROI" for investors. My family runs a printing business, employs people, and invested millions in time, money, sweat, worry, and work. Why the hell should our profit be taxed out the ass, while some ass wipe does "creative destruction" take overs, and short sells stocks, credit swaps, pay little or no tax, while we pay very high taxes, even BEFORE we make a dime.
Tax income as income, period. Let the market work. If your ass wants to invest in credit swaps, great, invest away. If you want to make your money short selling a stock and leverage buy outs, great, go for it.
But get off my ass and outta my savings by telling me I should pay 2-3-4-5 times the tax rate these guys pay.
If anything, people who actually invest and work in their business, who produce a good or service, who hire, and pay taxes, and make this country function, THEY should get the low rate, if a low rate is going to be had.
Romney and others should be ashamed of their tax rate --which is not even 13.9, but more like 8%, if he would reveal how much he has hidden.
So why you "tax experts" get real, let me know.
Luckily, just now, just the last week, since Mitt Romney was pressured to release his taxes, do people seem to get it. Maybe a Mitt candidacy would get this out more, though he has no chance at nomination. Newt wants ZERO taxes for people like Mitt. But with FOX news lying their ass off about taxes, with almost every tax "expert" like you babbling on without even mentioning the biggest determinant in taxation, I don't see much hope.
By the way, Ronald Reagan raise the shit out of capital gains, and said it should not be given preferential treatment. So did Abe Lincoln. Why the hell isn't anyone calling these politicians today on this stuff?
Yikes, I think you missed the mark in two ways:
First, your comment "...reduce their taxes far below the rate honest workers pay...". Really? Honest people? So the rich are not honest? I think you meant to say "wage earners" or something to that effect.
And second, this whole discussion on the AMT is not even relevant to the current dialog. The AMT became more and more a problem for middle class wage earners and that is why it had to be "fixed" again and again. rightfully so. But the ultra wealthy, like Romney, who get all of their income from interest and dividends pay a lower rate of 15%, ( and that income is not even subject to the AMT). The dialog is about the differences in the RATES!
You really need to consult a tax accountant before you solicit articles to HuffPost. I have no idea how this one slipped past their editors!
If millionaires should pay (at least) the same rate as regular working people, then why shouldn't upper-middle-class people also pay (at least) the same rate as "the little people"? If you're making $249k, you probably can't afford a personal tax lawyer who specializes in your kind of situation, but you can afford H&R Block Premium. If that slightly-premium service lets you find a bunch of loopholes so that you pay a lower tax rate than Joe Sixpack, how is it that those loopholes are good while Mitt Romney's loopholes are bad?
This is where we get into some massive budgetary fiction, or (if you prefer) blatant hypocrisy by our lawmakers (of both parties, it bears mentioning).
It certainly does!! :D
Which is why I have always said that Democrats and Republicans only pay lip service to actually making the tax code fair..
Does anyone here HONESTLY believe that lawmakers are going to enact laws that will cost them MILLIONS of dollars every year!??
If ANYONE here honestly believes that, then I invite them to come own down here to FL, because I have some really nice swamp-front property I want to sell them... :D
Obama should go ahead with his A.M.M.T., and at the same time reform the A.M.T. so that Congress won't have to perform this fudging of reality every single year.
Once again, you are dead on ballz accurate CW....
But Obama won't do it... He will pay lip service to it, he will campaign on it....
But you can bet that every December there will be another AMT "fix"....
Obama is not about to change something that will cost him and his cronies millions each and every year...
Even if, by some miracle of the gods, Obama does try it.... Congress won't let him...
These are our representatives...
Ain't they peachy??? :^/
Michale.
dsws,
If Chris has described it properly, then only that portion OVER 1M would be subject to the added tax.
I have a tax lawyer (actually, I have 2 because I pay taxes in 3 states) and I've never been able to get below 28%.
So what is this bullshit about the upper middle class not paying their fair share? You literally need millions to seriously avoid a large portion of taxes.
It doesn't seem to me that Mitt did anything illeagal at all in only paying 14%. It does seem to me that it is more than a little hypocritical to try to tell people that he's "one of us" when he makes 20M per year. It is the infrastructure of the US that allows him to make that kind of $$ on stocks and such. He should be willing to pay for that infrastructure.
I did.
It is the infrastructure of the US that allows him to make that kind of $$ on stocks and such. He should be willing to pay for that infrastructure.
And so should everyone who complains that the rich ain't tax'ed enough...
Absolutely NO ONE is stopping ANYONE from paying more in taxes..
I'll listen to the likes of Buffet (and Buffet's secretary) and Obama and Pelosi and Reid when they show me that they voluntarily paid more than what is required in taxes..
Until they do, they are just talking out their asses... And rank and file Democrats enable such ass-speak...
Michale
Looks like the rats are jumping ship...
Geithner Says Obama Won't Ask Him to Remain Past First Term
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/01/25/bloomberg_articlesLYDGJ30D9L3501-LYDWE.DTL
Liz is going to be devastated....
Michale
I have a tax lawyer (actually, I have 2 because I pay taxes in 3 states) and I've never been able to get below 28%.
So what is this bullshit about the upper middle class not paying their fair share? You literally need millions to seriously avoid a large portion of taxes.
I'm not pushing a judgment one way or the other over whether the AMT constitutes "their fair share". I'm wondering about the discrepancy between how it's supposedly "their fair share" when applied to the very rich, but not when applied to the merely upper-middle-class.
I'm not the one making the claim that the AMT hits the upper middle class, either. I don't know what tax rate they pay under the regular tax code, but we sure hear that the AMT would "unfairly" hit the upper middle class if not fixed every year. If you think it wouldn't apply to anyone without "literally millions" in annual income, take that up with the people making the claim.
"I'm not pushing a judgment one way or the other over whether the AMT constitutes "their fair share". "
Well, I am. It is unfair that 22MILLION dollars A YEAR pays less percentage than 35K/year.
It is obscene.
So, is it also unfair if $249k a year pays a lower percentage than 35k/year?
Math Matters and valleypeach -
First off, welcome to the site. Your first comments were held for moderation, but from now on you should be able to post comments instantly, unless you post more than one link per comment (these are held for moderation to cut down on comment spam).
Math Matters -
If you read the whole article, you would likely see that I agree with what I read to be your position. Just a suggestion.
I'm not a tax expert, nor have I ever called myself one. Just for the record.
The AMT, as it stands, does not (I believe) apply to capital gains. Obama's plan would change this, or else Buffett is still paying a lower rate than his secretary. He hasn't released specifics, but I bet they'll be something close to: AMT below $1m as usual, above $1m capital gains taxed as regular income.
Um, did I mention investors or ROI?
I'm not sure why you think I'm "on your ass" but I actually agree with Obama's plan, and I have been pushing for capital gains to be considered income like all other income for years.
Here's a suggestion: read this article I wrote back in 2007 and see if it says what you're looking for or not.
valleypeach -
Um, I think we actually agree as well. Obama's new AMMT would -- by definition -- have to include capital gains, or else Buffett still pays less than his secretary. The old AMT doesn't, which is one reason why it needs reform.
The AMT causes problems over and over for the middle class precisely why I said it does -- because it is never actually "fixed" -- instead, each and every year it faces the same "it's going to impact millions of middle class folks" problem, and Congress "fixes" it for precisely ONE year.
As for "honest," here is the whole quote: "limit the loopholes and tax giveaways that very wealthy people use to reduce their taxes far below the rate honest workers pay." The flip side to "honest" is "the loopholes and tax giveaways" not the rich. Mitt honestly paid his taxes, no question. But the capital gains thing is merely the biggest, most egregious of these loopholes, which I consider dishonest. Capital gains is either a gigantic loophole or a monstrous tax giveaway (take your choice), to put it another way.
I was already in the weeds far enough with this article, so I didn't think I had to retrace the whole capital gains ground (see article I cited, above, to Math Matters). What I am suggesting is that Obama combine his new idea on the AMMT (which would HAVE to treat capital gains as straight income, or it just wouldn't work for Buffett) with the idea of permanently fixing the AMT, so we don't have to watch the yearly charade about the "fix".
dsws -
Again, that's what the AMT was originally designed to do -- limit the loopholes to higher-income-earners. They usually phase things like this up, so if you make a certain amount, you're allowed 50% of the loopholes, but if you make twice that, you are allowed 0% of the loopholes. That's the theory, anyway, which gradually cuts the loopholes off as income rises.
Der Farm -
What I find hypocrisy from Mitt is the "I'm unemployed" or "I fear a pink slip" quotes -- pandering on the campaign trail to the unemployed voter. How many "unemployed" folks have a $21m income to fall back on?
To put this into some perspective, I heard recently a stat that something like 97-98% of the tax income which comes in as capital gains tax falls on 2% of the people. That means that those 2% are making 98% of the profits on Wall Street -- and that middle-class folks' investments are literally peanuts beside their share.
I actually agree with one piece of Mitt's tax plan: go ahead and set capital gains taxes to zero for anyone making $250K or less -- give the middle class a break. But above that is where Mitt and I differ, because I would then tax everything above that as income, no matter where it came from.
-CW
Capital gains tax is messed up two ways: first it taxes income from financial speculation far less than income from productive work, but second, it taxes based on inflation. If you've held a stock for thirty years because your father bought it, and it's been keeping the same real value while paying its real return as dividends, the nominal value has increased a lot because of inflation.
Of course, stocks don't pay dividends so much any more, because of the tax advantage of capital gains. If a firm wants to give money to shareholders (which is supposed to be its purpose, after all) it does so by buying back some of its stock. That's exactly like a dividend, except for what it's called and how it's treated for tax purposes.
or else Buffett is still paying a lower rate than his secretary.
Why all the hulla-ballooo over Buffet's secretary???
She and her husband are millionaires.. They are part of the 1%, not the 99%...
Do ya'all REALLY want to make her the poster child for helping the middle class???
Michale
So you're fine with gross unfairness between the merely rich and the super-rich?
So you're fine with gross unfairness between the merely rich and the super-rich?
Over 50% of Americans pay absolutely NO TAXES whatsoever..
THAT's what I call "gross unfairness"...
The problem here is the Left's definition of "fair"...
The Left defines "fair" as the rich giving all they have...
Ironically enough, even if the 1% were taxed at 100%, that STILL wouldn't even scratch the surface of the debt that Democrats have ran up...
Michale
I'll take that as a yes: you're perfectly ok with having 1M-a-year households pay 30% while a hedge fund manager who nets 100M in a year pays 13%.
Over 50% of Americans pay absolutely NO TAXES whatsoever..
THAT's what I call "gross unfairness"
It's what I call a big fat lie.
I actually agree with one piece of Mitt's tax plan: go ahead and set capital gains taxes to zero for anyone making $250K or less
Why? Why should someone making $249k on financial speculation pay nothing, while someone making $106,800 on actual work pays the highest rate around?