democrats confront tax issues
The Democratic Congress has begun to consider its tax priorities for the next two years. According to press reports, these will include, inter alia, efforts to restrict the scope of the alternative minimum tax (AMT) and a possible compromise on the estate tax, together with various base-broadening and anti-evasion measures. The AMT is a particular priority since it hits many voters in high-tax states like . . . New York, where new Ways and Means chairman Charles Rangel makes his home.
The AMT issue demonstrates the difficulty of pushing taxes into a simple left-right dichotomy. The tax is surely unpopular, both because of its financial bite and its sneaky character, pretending to be an anti-tax shelter measure when it is in fact a rather poorly hidden tax increase. Yet the people hit by it--people like me, for example--tend to be upper middle class and reside in the better off parts of the country, which are mostly the ones that can afford to impose higher taxes in the first place. Is relief for these people really a "progressive" measure, or is it simple politics?
The estate tax presents similar quandaries. Surely a fair tax system should tax large bequests with no less enthusiasm than it goes after small gobs of income. Yet as John Langbein has persuasively argued, the tax tends to be arbitrary in nature, reaching farms and businesses while lacking the capacity to confront those forms of inherited advantage--good schools, personal connections, the right way of thinking and speaking--that are most important in a postindustrial society. For this and other reasons, some liberals actually oppose the tax, while others are relatively lukewarm in defending it. One way to deal with such complexity is simply to split the difference, keeping the tax but with a relatively high ($3 million? $5 million?) exemption amount: which is exactly what Congress may do.