Tags: Congress | president | AMT | tax

Tax Reform and Taxing the Rich — The Answer Lies in Clear View

Monday, 11 Mar 2013 08:55 AM

By Denis Kleinfeld

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If history teaches nothing else, it is that congress and the president do the same thing as their predecessors did for the same reasons.

In Washington, D.C., today, congress and the president tussle over “tax reform” and taxing the “rich.”

Should the marginal tax rates go up or should the deductions go down?

Is there any difference?

Some politicians want to close all the “tax loopholes,” or tax expenditures, to raise more tax revenue. Others want to lower and flatten tax rates to grow the economy and thereby grow more tax revenue.

The term “tax expenditures” was coined some 45 or so years ago under the Johnson administration. Then, as now, a never-ending war was being fought with always increasing budgetary costs.

President Lyndon Johnson managed to escalate an apparently unneeded foreign war while at the same time creating the beginnings of a vast new welfare system called the “Great Society.”

The 1969 Tax Reform Act created something called the minimum tax and didn’t reform anything at all.

President Richard Nixon took it from there, and the spending by the government zoomed. All sorts of nefarious agencies were created for the public good, which now are being targeted for elimination for all the harm they have caused.

Finally, in 1978, under the President Jimmy Carter, the alternative minimum tax (AMT) was fully born. Both of the political parties agreed on the idea of lowering tax rates on income and capital gains for the non-rich and raising the rates on the AMT, payable by the rich.

Essentially, the road to a flat income-tax system has been opened.

Then the Reagan presidency appeared on the scene. The 1981 tax act reduced marginal tax rates dramatically.

By 1982, the federal budget, however, was heading straight up.

Tax revenues went up, but congress and the president continued their custom of more spending on the military and increased spending on welfare.

Curiously, then-Sen. Bob Dole, who was chairman of the Senate Finance Committee and later a presidential candidate, did not subscribe to the view that cutting taxes would result in an expanding economy and thereby increase tax revenues.

The Tax and Fiscal Responsibility Act of 1982, of course, accomplished neither. Without much protest, President Ronald Reagan embraced the $18 billion or so in new tax revenue.

It’s what they do in Washington, D.C.

By 1986, a corporate minimum tax was also added to the relentlessly burgeoning tax code. Congress and the Reagan administration decided that the rich corporations were also tax cheats.

From 1986 to 2013, the tax charade continues.

As the United States find itself funding another never-ending war with no limit on costs, and entitlement programs rapidly growing larger than the economy, congress and the president seemingly can find no solution.

Remarkably, the tax reform that the political left and right cannot agree on is right in front of their eyes. It’s been agreed to for decades.

Simply, repeal income tax but keep the AMT.

A flat-tax system does not need to be created, as the AMT is, effectively, a flat-tax system.

With an AMT system alone, the rich pay tax, while the non-rich don’t.

While keeping an income tax system, flat or progressive, is not going to be the ultimate tax solution, at least going to an AMT system can move the United States towards that goal.

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