Tax-as-You-Go

By U.S. Senator Jon Kyl The Alternative Minimum Tax (AMT) was first enacted in 1969 to prevent very wealthy individuals from using legitimate deductions and credits to eliminate their tax liability. But because the AMT is not adjusted for inflation, it now ensnares millions of Americans, and could capture an additional 23 million unsuspecting middle-class families this year if Congress does not act. In previous years under Republican-led Congresses, legislation was passed annually to provide temporary relief from the AMT, ensuring it didnt affect millions of additional middle-class Americans. Republicans tried to repeal the AMT permanently in 1999, but the bill Congress passed was vetoed by then-President Bill Clinton. As a result, Congress is forced to pass annual, temporary AMT-relief bills; but Republican Congresses never waited until the end of the year to do it, as is the case this year. By waiting so late, over 50 million taxpayers will have delayed refunds even if the AMT is suspended again. The problem the Democratic Leadership faces is its own doing a rule it passed called PAYGO, which requires Congress to offset (or pay for) any tax relief, even if, as with the AMT, there was never any intent to collect the tax. Since Congress wont cut spending, the only way to offset the theoretical loss of revenue is to raise taxes. Republicans have long warned that PAYGO leads to higher taxes, increased spending, and the use of budgetary gimmicks to avoid true fiscal responsibility all of which has proven true so far in the 110th Congress. And substituting one tax for another is not good tax policy. PAYGO is bad policy in the case of AMT relief because it provides only temporary relief from the AMT, but a permanent increase in other taxes. That results in more and more taxes. We should not have to raise taxes just to keep our AMT liability the same as it was last year, and the year before that. Its also bad policy because it would replace with new permanent taxes, a tax no one in Congress ever expected to apply (and which Congress will always override, even if on an annual basis). Senate Republicans held the line on these principles, and Senate Democrats recently agreed to approve a bill to provide AMT relief without replacing it with another burdensome tax. House Speaker Nancy Pelosi has vowed that the House wont go along so at the time of this writing, the issue remains unresolved. Another example that highlights the harm of the PAYGO rule is the farm bill. The Senate is debating a farm bill bloated with federal subsidies. In order to comply with PAYGO, the bill raises taxes, the largest of which would raise $10 billion (despite Treasury and Justice Departments saying the change in tax law is unnecessary and would actually not raise the revenue projected) to pay for much of the $29 billion in new federal spending authorized by the legislation. Raising taxes to pay for new federal spending is hardly an effective way to reduce the size of government or promote true fiscal responsibility in Washington. Taxpayers will not see a more efficient, less wasteful government if it must be protected against any loss in tax revenues. And it isnt as if Washington is short on money. The federal government now collects 18.8 percent (in 2007) of our Gross Domestic Product in taxes, above the 40-year average. If Democrats in Congress are worried the government cannot afford to give taxpayers a break, they put Washington above the people they assume that its more important to guarantee the government will never have less revenue than to allow taxpayers to enjoy less tax liability. How do you ever provide tax relief if every tax cut has to be matched by a tax increase? The alternative is to cut wasteful Washington spending. Now theres a good idea.