Civilizing thetax code

A proposal to eliminate the alternative minimum tax deserves a look.

Last week, Rep. Charlie Rangel, D-NY, put forward a proposal that would provide a sweeping overhaul of the tax code in this country and would eliminate an increasingly onerous part of the code – the alternative minimum tax.

The alternative minimum tax is frequently mentioned by television and newspaper commentators but rarely explained. It was instituted in 1969 as a way to make sure the highest income earners in the country didn’t use loopholes and deductions to avoid paying federal income tax, and instead were required to pay either their regular income tax or the “alternative minimum,” whichever was higher. Since President George W. Bush’s tax cuts, the regular income tax has decreased, but no similar change was made to the alternative minimum. This year, 27 million middle and upper-middle income earners in the United States will owe the tax, up from 4 million last year – a group the tax was never intended to target.

Rangel’s proposal would eliminate the tax completely, and replace its revenue by eliminating the Bush tax cuts and raising taxes on private equity and hedge fund managers, who rake in millions of dollars each year in income but pay tax rates lower than the middle class. Already, anti-tax zealots are dubbing Rangel’s proposal the “mother of all tax hikes.” Yet, if they bothered to look at the actual proposal, they would find it is revenue neutral, meaning it doesn’t increase the amount the government receives each year, it only shifts who the money comes from.

Their opposition to reforming the tax code in a way that favors the middle class instead of the wealthy, though, shouldn’t be unexpected. The Democratic Party deserves more of the criticism, because hedge funds and private equity have become major campaign donors, and party leaders don’t want to bite a hand that has generously fed them, even if it means perpetuating the current unfair tax system.

No one expects this proposal to go anywhere this year or next, but we feel it deserves a good long look. Oliver Wendell Holmes once said that taxes are what we pay for a civilized society. Rangel’s plan would help the government collect them in a more civilized way.