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Monday, November 26, 2012

Gatsby's at it again

Senator Ron Wyden, allegedly a Democrat from Oregon, has a tax plan. And funny thing -- it's not the White House plan. It's not the Democratic Party plan (if such a thing exists). It's his own special plan, with a Republican co-sponsor. Or maybe it's just a "white paper." Guess that depends on whether he needs to disavow it later.

Here's what he said was in it in May:

[L]ower marginal tax rates — the tax rate on the last dollar of income earned — did more for the economy as a whole than special tax provisions or sweetheart deals.

Our bill wipes out dozens of these giveaways and lowers the corporate tax rate for everyone, from a global high of 35 percent down to a competitive 24 percent. That will boost American businesses’ ability to compete, plain and simple.

The Wyden-Coats bill eliminates the tax break for shipping jobs overseas but gives U.S. corporations a one-time tax holiday to repatriate profits currently held offshore, helping them transition to the new tax system. In addition to the low flat corporate rate, this will help make the U.S. a more attractive place for both U.S. and foreign businesses to invest.

A sweet deal indeed for the corporations. What about human beings? Here's what Gatsby's talking this week:

Wyden and Coats would reduce the number of individual tax brackets from the current six to three: 15 percent, 25 percent, and 35 percent. They would also eliminate the Alternative Minimum Tax. The AMT is the controversial parallel tax designed to keep wealthy taxpayers from avoiding tax liability, but unless Congress overrides it, the number of people who have to pay the AMT would explode from four million to 33 million.

Wyden and Coats also want to eliminate many common deductions and replace them with a larger, flat deduction that they say would allow many taxpayers to file without itemizing. According to the senators' calculations, Wyden says, individuals and couples with incomes up to $200,000 would "do as well or better than they do under current tax law."

That last statement may be true, as far as it goes. And the bill also increases the tax that upper-income folks pay on their investment gains and corporate dividends -- a long overdue change. But eliminating the alternative minimum tax would also be a sweet present for the upper-middle- and high-income sets.

In any event, if the country thinks there's going to be a fundamental tax reform package passed in the next month, it seems badly mistaken. What's more likely is that Congress and the White House will kick the can a little further down the road -- enacting a "patch" of a year or two. There are simply too many discordant voices babbling about taxes right now -- Wyden's included.

But what's more interesting for Oregonians is that Wyden continues his feeble Mark Hatfield impression, trying desperately to create a positive reputation by playing footsie with the Republicans, all the while shuttling back and forth between D.C. and his wife and kids' Manhattan home. The first time he put this very same tax plan forward, his co-sponsor was a different Republican, this one from New Hampshire, who promptly left the Senate and is now working at Goldman Sachs.

Maybe that's where Wyden will wind up if they ever pry his gnarled hands off his Senate chair. It's a much easier commute from midtown to Wall Street than to Washington.

Comments (9)

"What's more likely is that Congress and the White House will kick the can a little further down the road"

You expect something different from this bunch in Congress?

I'm not crazy about the AMT, but one thing it does is take out the deductions which are the one thing the rich have (plus better CPAs). If you raise the rate to 99%, if the AGI is $0 for a bazillionaire, what diff does it make?

I don't understand the Alternative Minimum Tax, but I thought you hated it.

Hey Steve, When AMT reaches families making less than 75K, taking away deductions for property taxes and mortgage interest, you might have a slightly different view.

The intent of the AMT was to tax the 100 or so families who paid no income tax at all back in the 60s. That millions are now touched by the AMT indicates that something is clearly wrong in the tax code.

As for what Congress will be doing? yes, they'll play some more kick the can.

Good morning Mr. Phelps...

"you might have a slightly different view."

I said I'm not crazy about it, but the idea of taking away deductions which (outside of the home mortgage) benefit the rich is something I'd investigate.

However, in any case it'll be another patch job to turn the IRS code from 10,345 pages to 10,522 pages.

For the record, mortgage interest on debt used to purchase, build, or substantially improve a first or second home is not an adjustment item for calculating AMTI.

I stand corrected on the mortgage interest.

I'll have to take another look at what triggered my AMT.

I have found that the loss of the state income tax and property tax deductions, coupled with the loss of the personal exemptions, is the cause for many AMT assessments in Oregon.

Somehow Wyden putting his tarnished two cents into the tax code does not seem like a good idea. Once again, everyone is talking about tax "brackets" when it is the effective tax rate that matters. Lowering your bracket to 15% is not going to do much if they increase your taxable income. Little Ronnie wants to be relevant with some slight of hand.

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