House Democratic leaders, in an effort to upstage Republicans on the issue of tax cuts, are preparing legislation that would permanently shield all but the very richest taxpayers from the alternative minimum tax, which is likely to affect tens of millions of families as early as next year if it is left unchanged.
What? Democrats cutting taxes?
What's behind the move is the hit middle and lower income people take while leaving the rich unscathed. Not to mention political demographics.
While perhaps counterintuitive, the House Democrats’ embrace of tax-cutting rhetoric stems in part from a pragmatic consideration: the alternative minimum tax has a disproportionate impact on Democratic-leaning states. That is because those states tend to have higher incomes, higher property values and higher state and local taxes — all factors that expose people under the alternative tax formula.
A new analysis by Citizens for Tax Justice, a liberal research group, predicts that almost one-quarter of all taxpayers in Connecticut, New Jersey and Massachusetts will have to pay the alternative tax in 2007 unless Congress freezes it again. About one-fifth of all taxpayers in New York and California would be exposed.
...“When you look at the statistics and see who this is going to impact, the numbers are pretty staggering,” said Representative John B. Larson, Democrat of Connecticut.
How will they make up for the trillion dollar loss?
To pay for permanent tax relief, Congress would have difficulty avoiding two basic choices: impose a substantial tax hit on the remaining 3 percent of taxpayers at the very top, or scale back tax breaks, like the deduction for state and local taxes, that benefit people in many tax brackets.
Like it or not, such a tax cut amounts to a substantial net political gain for Democrats.
[They] see multiple political benefits from seeking a permanent fix. Some are eager to position themselves as tax cutters. Others want to show their ability to tackle a big and difficult initiative. Last but not least, the alternative minimum tax has a disproportionate impact on states with higher average incomes and high state and local taxes — like New York and California — which tend to vote Democratic.
