Economic Recovery Compromise Makes Rich, Richer: The Alternative Minimum Tax

The President's Economic Recovery Act plan, called the Economic Stimulus and much needed, is headed toward passage but only because of a compromise that essentially makes the rich, richer. It's also a good reason why I believe we need to have a program that gives at least $3,500 to each American under $100,000, rather than just tax credits.

Reportedly, $100 billion was shaved off the plan, but according to the blogger LithiumCola at The DailyKos, the big reason why the plan was cut, and why the Senate plan was about $80 billion more expensive than the House plan, was the installation of a provision adjustment in what's called The Alternative Minimum Tax, such that the AMT increases incomes for those making more money, whereas it has little if any impact on those making less, specifically:

Haley points to a study at the Tax Policy Institute which shows that slashing the AMT increases the incomes of Americans in the top quintile by 1.3%, Americans in the next-highest quintile by .7%, the middle quintile by .1%, and does nothing at all for Americans in the bottom 40% of incomes.

To put that another way, Americans in the middle 20% of incomes will get on average a whopping $52 because of Senator Grassley's demand, those in the second-highest 1/5th will get $502, while Americans in the top 1/5th of incomes will get an average $2,593 -- and that last one includes those in the top 5%, who will get an average of $4,511. This is what the WSJ calls "shielding millions of middle-income Americans from the so-called alternative minimum tax."

It's for this reason I continue to push for a targeted stimulus of $3,500 for every American under $100,000 in income, or an planned allocation capped at 100 million people. The total cost would be $350 billion, and worth every penny.




According to the Federal Reserve Board 2004 survey of consumer finances, the average balance for those carrying credit card balances was $2,200, but many American families do not carry a credit card balance, so the fear that this $3,500 would be used only to retire credit card debt is unfounded. Indeed, there's more evidence to support the observation that the money would be used -- especially by those in the lower income categories -- just to keep a roof over their heads.

US Sherriff's don't want people evicted as record home foreclosure rates are expected. This proposal, combined with relaxed mortgage rates and anticipated refinancing plans, could help to keep Americans in their homes for at least an additional two years. That buys enough time for the other job-producing aspects of the Economic Stimulus plan to take effect.

In closing, given the trillions of dollars sent directly to corporations, $350 billion to the Americans who need it the most is not too much to ask for.


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