It’s April 15, so I thought it appropriate to share a few tax-related items for your viewing pleasure. Although, in this instance, I’m not sure how pleasurable they’ll really be.
First, you might find it interesting that taxes on U.S. corporations are shrinking dramatically. In fact, as the Wall Street Journal noted this week, “it is hard to see how the corporate tax tally could get much smaller.”
Corporate taxes have become a hot-button issue on the presidential campaign trial this year, fueled by a recent Government Accounting Office report that showed less than 40% of U.S. companies paid any federal taxes in each of the four years from 1996 to 2000 as well as a separate study showing that Internal Revenue Service audits have continued to drop under President Bush.
That’s right; more than 60% of corporations in this country have no federal tax burden whatsoever.
Second, the estimable Matthew Miller had a great op-ed in the LA Times this week explaining how conservative anti-tax arguments are misguided.
Miller notes that the crux of the conservative argument tends to be that the tax burden falls excessively and unfairly on the wealthy few. As Miller explained, however, that’s just not the case.
The conservative worldview inexplicably ignores the payroll tax — predominantly the FICA deductions for Social Security and Medicare — as well as excise taxes on things like liquor, gasoline and tobacco. Those taxes take their biggest bite, proportionally, from lower-income Americans.
These regressive taxes have quietly and shockingly reached near-parity with the income tax as a source of federal revenue. This year, the income tax will account for 42% of federal revenue; the payroll tax will come to 41% (up from 16% in 1960).
If you count the portion of the payroll tax paid by employers, which economists agree effectively comes out of workers’ wages, four out of five workers pay more in payroll taxes than in income taxes.
When you look at who pays what based on total federal taxes, the United States doesn’t look much like an Ayn Rand novel after all.
And, finally, there’s the dreaded AMT — Alternative Minimum Tax — which Slate’s Daniel Gross did a stellar job explaining in a column this week. In fact, to hear Gross put it, the AMT is Bush’s “secret tax on Democrats.”
The Alternative Minimum Tax is becoming a miserable annual tradition for a growing group of prosperous taxpayers. (If you’ve just received a nervous phone message from your accountant—that’s probably what she’s calling about.) The AMT traces its origins to a minimum tax enacted in 1970 when Americans were scandalized to learn that some 155 high-earning taxpayers owed no income taxes in 1966. The AMT was originally designed so that people who had a lot of income but loads of deductions — through the standard exemption, the ability to write off property taxes and state income taxes — couldn’t reduce their taxable income to next to nothing. Historically, it applied to a tiny minority of taxpayers. But with every passing year, more and more citizens are ushered behind the velvet ropes. This congressional backgrounder suggests that 1.8 million Americans paid it in 2001. Newsweek’s nearly infallible Allan Sloan wrote earlier this month that “about 2.3 million returns for 2003 got nipped by the AMT.” The numbers are set to rise exponentially in the next several years. A two-income couple in New Jersey — he’s an accountant, she’s a public school teacher — with combined income of $230,000, three kids, and annual property taxes of $15,000, could easily fall into paying the AMT. Even government bureaucrats get nailed. Last year, IRS Taxpayer Advocate Nina Olson paid the AMT.
While Republicans are patting themselves on the back for reducing marginal taxes, they’ve been oddly silent about how the AMT excludes millions of Americans — and relatively well-off ones at that — from the benefits of the tax cuts.
Gross has a theory as to why the GOP is unconcerned about these tax increases on upper-income earners — they’re in Dem states.
[I]f you live in a no-income-tax state like Florida, Texas, or Wyoming, or in a state where housing prices and property taxes are very low, like, say, Mississippi or anywhere in the Great Plains, you’re less likely to be AMTed…. The AMT seems designed to snare people who earn between $200,000 and $500,000; who work in fields like finance and technology; and who live in places where property taxes and state and local income taxes are high, like New York, New Jersey, Connecticut, Massachusetts, California, and Oregon — states that are resolutely Democratic.
By 2010, the AMT will affect 33 million taxpayers — about one-third of all tax returns — up from 1 million in 1999. This would make the AMT almost as common as the mortgage interest deduction is today. The AMT will be the de facto tax system for households with income between $100,000 and $500,000, 93 percent of whom will face the tax. It will encroach dramatically on the middle class, affecting 37 percent of households with income between $50,000 and $75,000 and 73 percent of households with income between $75,000 and $100,000 (compared to less than 3 percent for each group in 2002).
If a Republican White House and Congress are overseeing a significant tax increase for millions of families, why don’t lawmakers just fix the AMT? That’s the funny part — they can’t afford it.
Republicans don’t want to fix the AMT because fixing the AMT would require undoing their beloved tax cuts. Without the billions generated by millions of taxpayers getting slammed by the AMT, the marginal rate cuts would be impossible to sustain for the next several years, let alone make permanent. Without the AMT, the deficit picture would look far worse than it does.
Happy filing, everyone.