Those who cannot remember the past are doomed to repeat it. Everyone has heard that most famous quote, except apparently President Barack Obama. It has been clear for some time that economics is not his strong suit, but we must now add history to the list.
In yet another round of his tiresome and utterly self-destructive war on job creation and economic growth, the president is calling for a "millionaire tax" as part of yet another political offensive to shift blame for the terrible economy his policies have created.
His plan, according to The New York Times, would call for "a new tax rate for individuals making more than $1 million per year to ensure that they pay at least the same percentage of their earnings as middle-class taxpayers."
This crusade was begun by Warren Buffett, who publicly complained that he pays a lower tax rate than his secretary. Efforts to have Mr. Buffett voluntarily pay more taxes have been unsuccessful.
But the president and Buffett needn't worry. We already have a millionaire tax. It's called the AMT. But what it has become over the years should give pause to anyone who believes that Obama's new tax would belimited to millionaires.
The Alternative Minimum Tax (AMT) was created by Congress back in 1969 in response to press reports and IRS statistics indicating that as many as 150 high-income households had not paid any federal taxes.
Congress responded to the outrage by enacting the Minimum Tax, predecessor of the AMT, whose aim was to ensure that millionaires paid their fair share.
The congressional report accompanying the legislation sounded a rationale identical to Obama’s: "In fact, many individuals with high incomes . . . paid lower effectives rates than many individuals with modest income."
In the intervening years, the AMT has grown as politicians have used the tax as a back-door way to raise revenue. The minimum tax rate has grown from 21 to 24 and now to the current 26/28 percent.
AMT has become a parallel, complex tax system with its own set of exemptions, deductions, and credits. Millions of filers now have to calculate their taxes twice, first under the regular code and then for AMT.
More ominously, the number of households subject to AMT continues to increase. Congress has never fixed the underlying system but has enacted short-term fixes to keep even more households from paying the AMT.
Yet, its reach continues to grow. In 2008, 3.9 million individuals, or 4 percent of filers, paid the AMT. Of these, over a quarter of these households had incomes of less than $200,000, Obama's magic figure for guaranteeing no tax increases.
The growth is not hard to understand. Complexity helps the tax collector and politicians raise revenue while claiming not to have raised taxes.
More importantly, the leviathan that has become the modern federal government needs more and more money to function. There are simply not enough millionaires to pay the freight, so the tax naturally is extended to the very well off, then the upper middle class and now the middle class.
As Willie Sutton famously said when asked why he robbed banks, "That's where the money is."
Politicians have to tax the middle class to pay for their spending plans because that's where the real money is. With almost half the country free from any tax responsibilities and an insufficient number of billionaires like Warren Buffett available, the middle class gets stuck with the bill.
The millionaire tax is a bad idea. The super wealthy will always find ways around it. Buffett's complaint is really a testament to the redistributionist failure of the current AMT. Why would another millionaire tax be any different?
The tax would nullify the special capital-gains rate for many individuals who derive most of their income from that source, another hit to risk taking and capital formation. It will complicate, not simplify, the tax code. And the idea is positively insane at a time when America is teetering on the edge of another recession.
But history also tells us that it eventually will reach average taxpayers. Obama's spending ambitions are dependent on new sources of revenue, lots of revenue. His new tax will eventually affect the middle class. It has to. That's where the money is.
Frank Donatelli is Chairman of GOPAC, the center for educating and electing a new generation of Republican leaders.
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