海角大神

When the president first announced his Buffett Rule鈥搕hat millionaires should pay at least 30 percent of their income in tax鈥搃n the State of the Union address in January, I had a strong sense of d茅j脿 vu. 聽It is another alternative minimum tax, and its provenance is very similar. 聽Congress created a minimum tax back in 1969 when people were up in arms about 155 high-income people who hadn鈥檛 paid tax a few years earlier. 聽The logical response would have been to close the loopholes that let rich people avoid tax, but that would have been politically costly, so instead we got the thing that evolved into the AMT鈥搊ne reason 聽millions of upper middle-class Americans hate tax day.

The new AMT, called the Fair Share Tax, is anathema to tax reform (and I聽opined on that in Tuesday鈥檚 New York Times). It will be one more complication for people who are affected. 聽For example, if you鈥檙e on the cusp of paying FST, you won鈥檛 know whether your capital gains will be taxes at 15 or 30 percent. And it will generate enormous marriage penalties.

And it鈥檚 unnecessary. 聽If Congress is not willing to fix the underlying defects in the tax code, they don鈥檛 need a new AMT. One is really enough. 聽If capital gains and dividends were fully taxed under the AMT, as they used to be before the Tax Reform Act of 1986, the Buffett Rule would be satisfied without a new levy. 聽Moreover, I suspect that would raise聽enough more revenue that Congress could use 聽the savings to finally index the thresholds for the AMT so that it doesn鈥檛 have to be patched every year.

Some people, however, see the Fair Share Tax as a good start on tax reform. 聽The聽Times聽also had a nice article about two economic rock stars, Emanuel Saez and Thomas Picketty, who have been extremely effective at putting together data and analysis on rising economic inequality. The article is titled, 鈥淔or Two Economists, the Buffett Rule Is Just a Start,鈥� so the question is whether the Buffett Rule is a first step towards tax reform and a fairer, more progressive tax system, or a dead end.

The president has said that the Buffett Rule is not a specific proposal, but a principle for tax reform. The actual specific proposal, the Fair Share Tax, which the president supports, includes language saying that tax reform is the goal (thanks David desJardins for reminding me of this):

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The question is whether the Fair Share Tax is a complement to tax reform, or a substitute. 聽The president has been talking about individual income tax reform for several years. The president commissioned Paul Volcker to put together a tax reform plan. The Volcker Commission 聽issued a report, but the plan went nowhere. The president said that his Bowles-Simpson commission, which would have simplified taxes (although not made them markedly more progressive), had a lot of good ideas,聽but none of those ideas actually made it into his budget. President Bush actually did commission a聽credible tax reform plan, but once completed, he acted like it was never his idea.

If the president and Congressional leaders really want tax reform, they should propose tax reform and throw their weight behind it. 聽I understand this might not be a winning strategy in an election year, but we could lay the groundwork by putting together a serious proposal. President Reagan commissioned his Treasury to quietly put together a聽tax reform plan聽behind closed doors during the 1984 election year and then he pushed it to passage in 1986.

I don鈥檛, however, think it鈥檚 in Democrats鈥� long-term interest to further undermine an already dysfunctional tax system. The Fair Share Tax might be good politics, but it鈥檚 bad policy.