New Paper from CTJ Criticizes Turn to Borrowing
On Thursday, December 6, Republicans in the Senate voted en masse against consideration of a bill (H.R. 3996) passed last month by the House of Representatives to provide relief from the Alternative Minimum Tax (AMT) and offset the cost by closing loopholes for extremely wealthy financial managers. Instead, Republican leaders demanded that the federal government borrow the $50 billion. They got their way later in the evening, when the chamber passed a bill simply extending AMT relief without paying for it.
This sets the stage for a standoff with the House, where Democratic leaders are adamant that no laws be enacted to increase the federal deficit, in keeping with the pay-as-you-go (PAYGO) rules that were reinstated when the Democrats took control of Congress earlier this year. But in the Senate, because 60 votes are needed to pass most legislation, the Republicans were able to block the fiscally responsible approach even though it was supported by every member of the majority party.
Citizens for Tax Justice released a two-page paper today with figures explaining why this is a bad deal for middle-income Americans.
"I'm willing to accept a tax cut for people making upwards of $100,000 a year, if we send the bill to people making millions," said CTJ director Robert S. McIntyre. "But I can't support cutting taxes for such well-off people and sending the bill to people who make $50,000. Yet sadly, it's exactly those ordinary taxpayers who will likely bear the cost of the increased debt -- through higher taxes or reduced public services in the future."
Republicans Manage to Preserve Loophole for "Carried Interest" -- for Now
In the AMT relief bill passed by the House last month, one of the revenue-raising provisions to offset the cost would have closed the loophole for "carried interest," a type of compensation paid to buyout fund managers. Republican leaders have demanded that this loophole allowing wealthy fund managers to pay taxes at a lower rate than middle-income families be preserved. They appear to have gotten their way for now, as House Ways and Means Committee Chairman Charles Rangel has said he would drop the carried interest provision and replace it with some potentially more palatable revenue-raising provision.
But the battle over carried interest is far from over. In September, CTJ sent to the House and Senate a letter signed by around 300 organizations from every state urging that the loophole be closed. Lobbyists for the industry have acknowledged that the issue is likely to come up again in the next couple of years as Congress considers broader tax reform.
CTJ would like to thank all those who helped begin the fight to close the carried interest loophole. As a result of these efforts, the majority party in both chambers has, after some initial hesitation, completely adopted the position that the loophole should be eliminated. We will continue to build on these efforts as Congress turns to broader tax reform.
President Bush Relied on Expanding Reach of AMT to Mask Cost of His Tax Cuts
Republican congressional leaders claim that Congress should eliminate the AMT without paying for it because no one ever intended to collect the AMT's revenues. But that's not true.
When George W. Bush proposed his tax cut plan, he and his tax advisors were well aware that, since the AMT is an alternative tax, lowering the regular tax rates without adjusting the AMT would push tens of millions of people into the AMT. But they needed the added AMT revenues to significantly reduce the projected cost of Bush's tax cut program. In fact, Bush's chief economic advisor was adamant that Bush's plan contemplated a huge increase in the AMT.
"Having created most of the AMT problem, Bush and his congressional allies are now trying to rewrite history so they can get away with loading even more debt on our children," said McIntyre. "They shouldn't be allowed to get away with it."