Taxes: Can Congress fix the AMT?

Waterbury Republican-American ^ | June 17, 2007 | Editorial

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“Let’s say a person, a very lucky person, makes $2 million a year. He lives very well off the first $1 million and he banks the second $1 million. He doesn’t pay a cent of taxes on that second $1 million. How is that fair?”

—Chris Wallace, Fox News Sunday 5/27/07, regarding the FairTax
http://www.foxnews.com/story/0,2933,275734,00.html

This is the rhetoric you would be up against. Mike Huckabee was not up to it, and he is one of the FairTax’s most ardent supporters.

The FairTax would result in people who earn between $40K and $100K (the majority of voters) paying a greater proportion of taxes than they do today. You would have to get people to care that 5% of income earners pay an outrageous proportion of the taxes, relative to the government benefits they receive.

I don’t necessarily disapprove of the FairTax, although the Internet would make it a difficult tax to enforce, and it may cause deflation and push retailers into other countries. But tax rate progressivity is sadly built into the hearts and minds of the voters. It won’t matter if you tell them that 26% of all personal noncorporate income would pay for all federal expenditures in 2006, including Social Security, Medicare, and interest on the debt. They will just say, “Well I’m only paying 23% of MY income now. I don’t care whose picking up my slack.”

A more successful approach is to simply aim for simplification of the current tax code. Get rid of all references to churches, marriage, joint filings, education, health, farms, dependents, capital gains, local taxes, mining, IRAs, etc. Gradually phase out all exemptions and deductions. Tax each incremental dollar of gross personal income along the same progressive scale.

Without deductions, there is no AMT.
Without deductions, tens of billions are saved on accounting services.
Without deductions, Nancy Pelosi has fewer options to shape our society.

As long as progressivity is maintained, you are more likely to get Democrats/liberals to support it. Then, once simplification is achieved (and social engineering tax law thereby all but eliminated), we can fight over the progressive rates.