NCPA - National Center for Policy Analysis


December 19, 2007

It has been a while since taxes were a potent political issue.  But they could be an issue in 2008, as the federal tax structure is poised to change in the next few years, says syndicated columnist Michael Barone.


  • The Bush tax cuts are scheduled to expire in 2010, and the Democrats, who seem almost sure to hold or expand their majorities in the next Congress, seem determined not to extend some or all of them.
  • In addition, the alternative minimum tax (AMT) is now slated to hit more than 20 percent of taxpayers; and that percentage is due to rise every year since the AMT is not indexed for inflation.

The paradox is that the Democrats are desperately eager to spare relatively high earners from the AMT -- so desperate that they agreed to waive the "paygo" rule they reinstated when they took control.  The reason Democrats risked this embarrassment is that the AMT tends to fall on voters with high state and local government spending and taxes -- Democratic places like Massachusetts, New York, New Jersey and California, says Barone:

  • Taxpayers hit by the AMT can't deduct state and local taxes from their federal income tax bill; sooner or later, that puts downward political pressure on state and local spending.
  • And that, in turn, threatens the vested interest of a key Democratic constituency, the public employee unions.
  • Democratic voters in suburban New Jersey, for example, who feel far from rich, face a substantial tax rise if they're suddenly covered by the AMT.

Democrats seem on the surface unfazed by the political risks of tax increases and are preparing to argue they'll raise taxes only on the rich, says Barone.  But this may be awkward at a time when the budget deficit is rapidly declining and we face the nontrivial possibility of a recession.

Source: Michael Barone, "Democrats' taxing time," Washington Times, December 18, 2007.


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