- The Washington Times - Wednesday, March 21, 2007

Brackets are on the minds of many in Washington this week. For some it’s NCAA basketball picks run amok — my own Fighting Illini crushed me with a first-round collapse. But for those crafting the federal budget, talk of tax brackets weigh heavy as lawmakers hammer out annual fiscal blueprints in the House and Senate over the next month.

In the midst of March Madness, the two parties are engaged in a fierce tournament of their own, battling to see who can take home the tax-cutting trophy. Conventional wisdom suggests Republicans are the team to beat, but Democrats are trying to mount a comeback. Unfortunately for the American taxpayer, their efforts are more politically than economically targeted, and they might cut levies in one part of the tax code while raising rates on some of the same individuals in another.

Democrats’ rally cry is the alternative minimum tax (AMT), first instituted nearly 30 years ago as a way to ensure the super-wealthy didn’t get away without paying anything into federal coffers. For years the AMT was an obscure provision that mostly accountants worried about. But for a variety of reasons, including the 2001 and 2004 tax cuts, and the fact that the AMT has not been indexed, an increasing number of taxpayers are projected to fall into its snare. The majority staff of the House Ways and Means Committee estimates the number of taxpayers affected by the AMT is expected to jump from 4.2 million in 2006 to 23 million in 2007. That number could balloon to 48 million by 2016, according to committee documents. Moreover, the way it is calculated, states with high levels of local taxes, such as New Jersey, New York, Connecticut and California, have the highest percentages of taxpayers subject to this levy.

Not surprisingly, this liability in the azure regions of the country piques the interest of blue-state lawmakers. Avoiding levy increases for some of their constituents while gaining traction as tax cutters nationally is tempting political dessert. As Keith Koffler wrote last week in Congress Daily, “House Democrats have seized on the AMT as a potent policy and political weapon, signaling their intention to use the once-obscure issue as a way to bolster their 2008 prospects and combat extension of President Bush’s 2001 tax cuts.” In other words, they want to be tax cutters, too — middle-class tax cutters.

At first blush it looks like a brilliant political move. The solid Republican lead on who Americans trust most on taxes has been eroding since the 1980s, with the Democrats becoming more competitive on the issue in the past few years. Democrats have actually taken the lead in some polls on the question of managing tax policy. And now they want to use the budget debate to focus on avoiding the AMT bite as a way to solidify that advantage — or maybe even score a slam-dunk and run up the score as the champions of middle-class tax relief. Democrats say they too want to do a short-term fix and work toward a permanent resolution later this year. But that’s the time to hold on to your wallets.

While we won’t know the details for some months, the rhetoric starts now. The Democrats’ permanent “fix” probably means lowering the income threshold (translated: raising taxes) for those subject to the highest tax rate of 35 percent. In other words, they will raise rates in one part of the code to cut taxes in another. “That’s like taking money out of your left pocket to put it in your right,” one senior House Republican aide told me. Democrats will call it “raising taxes on the mega-wealthy.” Yet as another Hill veteran told me, it “seems like every time we ‘soak the rich,’ everyone gets wet.”

When all is said and done, Democrats will probably produce the largest overall tax increase in history, generating enough money to avoid the AMT bite for some by rolling back Republican tax cuts, raising taxes “on the wealthy” and paying for a bunch of new spending to boot. And as for Mr. Bush’s 2001 and 2004 tax cuts that spurred the strong economic growth, investment and jobs, they may face the same fate as the Fighting Illini and go down in defeat.

Democrats will try to win this political tournament by changing the definition of what it means to raise taxes. Let’s see if the media lets them win this game. Tipoff is this week.

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