Arnold Kling  

Explaining the AMT spike

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Congress has fought the arithmetic with "temporary" increases in the AMT exemption. The 2006 exemption is set at $62,550 for joint filers and $42,500 for single taxpayers. Without further legislation, the exemption reverts in 2007 to its "permanent" level of $45,000 for joint filers and $33,750 for single filers. That will be enough to make millions of Americans pay AMT. Hence the jump in the chart above.

So we have a large stealth tax increase scheduled. And still, deficits as far as the eye can see.


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CATEGORIES: Tax Reform



COMMENTS (10 to date)
spencer writes:

It is not so much a problem that income inequality is growing, it is much more a problem that we have a government that is actively reinforcing the trend by shifting the tax buden from the top to the middle income brackets.

And you are just now learning about this?

Mike writes:

Yes, I am just learning about this. Don't you find it slightly disingenuous to make that claim? People claim that the tax cuts in and of themselves are evidence of squeezing the middle class - I don't find it useful to point to the AMT as if that were what people were referring to all along.

Cranky today - my hockey team lost 8-0 last night.

John S. writes:

Hey spence, way to win people over to your side! Belittle them for not being as wise, all-knowing, and well-informed as you are.

Where's your blog by the way?

John Thacker writes:

"It is not so much a problem that income inequality is growing, it is much more a problem that we have a government that is actively reinforcing the trend by shifting the tax buden[sic] from the top to the middle income brackets."

But,
1) It's caused by the regular tax code being cut but not the AMT, and
2) People with a household income of $100-200K *are* considerably above the median household income. In fact, most of the increase in inequality in the first place is caused by households moving from the $50K-$100K range to the $100-200K (and up to 300K) range. Much of the middle class moved to the upper middle class.

Taxing those making $100-300K more would indeed reduce the income inequality spencer is talking about.

Of course, people making $100-300K still consider themselves middle class. The rich are always people making more than you. But going to the barricades for the plight of the upper middle and lower upper class is a bit unseemly.

Matt writes:

Without checking my statistics, I would hazard that the incomes of $100k-300k are just about average and should be paying no income taxes, that is they are at the mean, they get little gain from government growth and should pay little.

The burden of government, right now, is falling on those in the 0k-100k bracket. I say that because they get little from government, they participate little in government, and the private sector, which they rely on, is being hollowed out and crushed by government growth. These people are dropping out.

Above 300k you get the wealthy who grow government for their own means. So government become an upper class luxury. We see this in the attempted economic expansion into Iraq, the use of government to educate workers, and the use of government to support the pharmacutical industry. Reliance on government to open protected international trade, reliance on government to protect intellectual propoerty, internationally.

aaron writes:

Per cap GDP is in the 45k range, I'd call that average.

Bob Knaus writes:

Matt - always a good idea to check statistics before posting.

If you google "median family income" the top hit is this US Census site showing US median ($65,093) and median by state. NJ is highest at $87,412.

John Thacker writes:

the use of government to support the pharmacutical industry.

I do often wonder if those who make this argument similarly complain about government support to the educational industry?

John Thacker writes:

I would hazard that the incomes of $100k-300k are just about average and should be paying no income taxes, that is they are at the mean, they get little gain from government growth and should pay little.

I suspect from this comment that you fall into this range; nearly everyone in the US assumes that he's middle class. I would love it if people in the incomes of $100k-$300k paid no income taxes; government would have to be much, much smaller.

But, no, people making $100k-$300k are "the rich" that others are always talking about that we need to raise income taxes on. You actually can't get that much extra income just raising taxes on the incomes above that; there aren't enough of those people, and they can more easily move their income to other locations if you try to raise their rates too much.

aaron writes:

I like idea of using per cap gdp to set a level for tax rates (I think, making income excempt up to this level would be great) because it conveys a good amount of information to the filers. It gives the filers a standard to try to shoot for, as far as for income level. And it incentives higher pay from employers (employers love to spend money on things that are tax-free).

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