Alternative Minimum Tax Fix

In my post of 2/8/09, Less for the Same Price, I argued that the inclusion of $70 billion in the American Recovery and Reinvestment Act (ARRA, note that I misnamed the act in my previous posts) to fix the inflationary creep of the AMT was a mistake. It doesn't solve the problem for the long haul, makes the ARRA cost look larger than it actually is and then, to keep the cost down, is used as an excuse for reducing some of the needed spending on infrastructure and education improvements.

For the past several years the AMT has been fixed year by year as part of the normal budgetary process and undoubtedly would have been done so again this year. In addition, including it with the acceptance of the Republicans puts the lie to their arguments that items that should be part of the normal budgetary process should not be included in the Recovery and Reinvestment Act.

It is now 3 days since I wrote that. Until today I have neither seen nor heard anyone else mention the problem with the inclusion of the AMT patch in the stimulus plan. But this AM on C-SPAN's Morning Edition two of the guests mentioned the $70 billion AMT patch in their comments. Both Jodi Schneider, Senior Editor for Congressional Quarterly, and Martin Vaughn, reporter for Dow Jones News, stated that it is one reason why the other cuts in the plan were necessary to satisfy the Republicans.

Tonight the New York Times reported at 4:43PM that the House-Senate conference committee had reached an agreement on the contents of the bill. I quote here a paragraph from the story written by DAVID M. HERSZENHORN and CARL HULSE, Senators Announce Stimulus Agreement:

Despite intense lobbying by governors, the final deal slashed $35 billion from a proposed state fiscal stabilization fund, eliminated $16 billion in aid for school construction and sharply curtailed health care subsidies for the unemployed.

In driving down the total cost of the stimulus bill — from $838 billion approved by the Senate and $820 by the House — legislators also sharply reduced proposed tax incentives for buyers of homes and cars that held huge public appeal. Senator Collins said getting the final number to under $800 billion was more than symbolic; it meant “a fiscally responsible number,” she said.

But the final bill retained a $70 billion tax cut that would spare millions of middle-class Americans from paying the alternative minimum tax in 2009, which some Democrats decried as wasting a large chunk of the bill on something that would do little to lift the economy and that Congress would have approved regardless of the recession.

The final cost out of the House-Senate conference committee was reported as $789 Billion which is actually $719 billion not counting the AMT fix. Not nearly enough and way too much in tax cuts and not enough in infrastructure spending. If President Obama is to be successful in turning the economy around, he is way short of what it will take. The argument that he has to take what he can get may be true. However, not enough may be worse than getting nothing because we will have spent $700+ billion and end up in the same situation afterwards.