McConnell Proposes Stimulus for Tax Preparers
Senator Mitch McConnell proposed over the weekend to cut the 25-percent tax bracket to 15 percent as part of the economic recovery package. This might make sense politically, but it’s a pretty dubious economic stimulus.
On the positive side, the proposal wouldn’t cost much compared with the hundreds of billions bandied about by the president-elect. Total cost: $18 billion in 2009. But it’s so cheap because it would throw 5 million taxpayers onto the AMT, boosting AMT revenues by almost 80 percent. (More middle-class taxpayers fall prey to the shadow tax system because the lower tax rate pushes regular tax liability below the AMT threshold.)
Bottom line is that the proposal wouldn’t help many people other than tax preparers. The more than three-quarters of households in the 15-percent bracket or lower don’t benefit, nor would the 30 million already in the cross-hairs for the AMT. Only about 10 percent of taxpayers would pay lower taxes, and they’re the people who least need help.
Plus ça change…
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Good question. We haven't run the numbers, but the answer is basically yes. McConnell's proposal would cost more against a patched baseline and it would also likely throw more people onto the AMT. (The patch would take many people in the 25-percent bracket off the AMT; and many, if not most would end up back on the AMT if the regular tax rate is cut. Under current unpatched law, most of those people are already on the AMT.)
Would this analysis still hold true if Congress again “patches” the AMT for 2009?