Editorial
San Diego Union-Tribune
March 2, 2007

If April 15 looms before you like a bad dream, we offer this troubling insight – next year may be a full-blown nightmare. That is, unless Congress kills the alternative minimum tax.

This insidious tax hike will slap an average $3,000 onto the bills of 23.4 million mostly middle-class families this year. In 2006, it nipped just 3.5 million taxpayers, because lawmakers temporarily raised an exemption.

But like a zombie, the tax is back, lurching toward the middle class to reverse the Bush tax cuts. And this levy loves children: It kicks in at $52,000 for couples with five kids. That's just a notch above San Diego's median income of $46,000, by the way. Childless couples escape the tax until their income reaches $75,000.

If this seems unjust, blame the stale Democratic war on the “rich.” Nearly 40 years ago, President Johnson's Treasury secretary touched off a media frenzy with news that 21 millionaires paid no federal income tax in 1967. These folks were simply investing in line with government incentives, but they were still portrayed as evil tax dodgers.

By 1969, the Democratic Congress enacted the alternative minimum to kill exemptions for the highest income brackets. But lawmakers didn't index the law, so rising incomes have steadily expanded its net well into the middle class.

Setting aside the financial wallop, complying with the tax is a particularly infuriating ordeal. After victims have finished working through hundreds of IRS forms, schedules and instructions in search of perfectly legal deductions, they must then perform a separate calculation to see if they must toss all that hard work.

The result is a wasteful, parallel taxation system that is unique among developed nations.

Poetically, it falls to a Democratic Congress to clean up this mess. Bush administration officials have dropped hints that the president might trade “revenue neutral” tax hikes elsewhere in the code for fixes to the alternative minimum.

This is incredible. The alternative minimum dials in a monstrous tax increase. Why would Bush risk damaging the booming economy, which is rapidly closing the budget deficit, with tax hikes?

A clue came recently from White House spokesman Tony Snow, who said Congress has “20 months” – that is, plenty of time – to fix the tax. It seems the president's advisers expect voters to blame the Democrats.

So taxpayers may suffer to create a hot issue for 2008 political campaigns. Still, gridlock and its attending voter outrage could create conditions for real tax reform.

The federal tax code is a 55,000-page maze that drains $100 billion a year from the U.S. economy in unnecessary compliance costs.

In his most important economic achievement, President Reagan in 1986 persuaded an opposition Congress to streamline the tax system. Rates were slashed, and 11 brackets were cut to three. Loopholes vanished, cheating plummeted and revenues jumped.

Later presidents largely destroyed the gains. Given the risks of waiting, we urge Bush to repeat Reagan's triumph.

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