For conservative lawmakers taking stock of the 2005 legislative
year, two important lessons stand out. Whether they learn from them
could determine the extent of their successes in 2006.
Lesson No. 1: Some of the staunchest liberals in Congress appear
desperate to secure either the outright repeal or a temporary
mitigation of the Alternative Minimum Tax (AMT).
Created in 1969, the AMT was designed to extract tax payments from
a miniscule number of millionaires (then a mere 155) whose
aggressive use of tax deductions and other legal techniques to
shelter income erased their entire tax liability. Overwrought class
warriors of that era enacted a seemingly innocuous and limited
scheme that has morphed 35 years later into a tax code version of
Frankenstein's monster.
The AMT requires taxpayers who have already calculated their tax
liability on their 1040 Forms to enter a parallel Kafkaesque tax
universe that often hits them with thousands of dollars in
unanticipated tax liability. The AMT's reach has exploded in recent
years largely because its rate brackets and exemption amounts do
not automatically adjust for inflation. Thanks to its unforgiving
26 and 28 percent income tax rates and its disallowance of many
common deductions, such as those for state and local taxes,
personal exemptions, and the children's tax credit, the AMT now
ensnares 3.8 million unwitting victims, who in 2004 paid on average
an additional $6,000.
If current law remains unchanged, the number of AMT victims will
skyrocket, reaching 21.6 million next year, most of whom would hail
from decidedly middle-class backgrounds. According to the Treasury
Department, three in four taxpayers with incomes between $100,000
and $200,000 would be paying the AMT, as would one-third of all
those earning between $50,000 and $100,000. The hardest hit?
Taxpayers in the so-called Blue States.
Take the New York City metropolitan area. Fully 6% of taxpayers in
New York already pay the AMT, as do 5.9% of those in New Jersey and
4.8% in Connecticut. Add in 4.5% of Californians and approximately
4% of taxpayers in other high-tax jurisdictions such as
Massachusetts and Maryland, and you have what The Wall Street
Journal dubbed "a liberal tax that now hits liberal states
especially hard."
In contrast, only 1 percent or so of taxpayers in Red States such
as Alabama, Mississippi, Tennessee, Texas, Indiana, the Dakotas,
West Virginia and Oklahoma fall into the AMT trap.
Not surprisingly, reining in the AMT has risen to the top of the
agenda for enough Blue State liberals to intrigue Senate Republican
leaders. New York's liberal duo of Chuck Schumer and Hillary
Clinton voted for last fall's tax reduction package in large part
because it contained a one-year $33.4 billion "patch" of current
AMT levels. California's Dianne Feinstein agreed, asserting that
"middle class Californians are being hurt" by the AMT.
But how deep do these passions run among Senate Democrats? Would
they, for example, vote for a broader AMT "fix" if it were linked
to other pro-growth tax reforms, such as making repeal of the death
tax or the 15 percent rate for capital gains and dividends
permanent? If so, the ever-present threat of a filibuster would
evaporate and 2006 could be a breakthrough year for pro-growth tax
reforms.
Lesson No. 2: The end-of-session theatrics surrounding the effort
to open up the Artic National Wildlife Reserve (ANWR) to oil and
natural gas drilling made one thing abundantly clear: No
controversial legislation can survive this intensely partisan
Senate absent the procedural protections afforded by the
budget-reconciliation process.
Bills that reconcile the spending levels in current law with the
targets set forth in each year's budget resolution have one very
special privilege -- they require only a simple majority to pass,
rather than the 60 votes needed to break a filibuster. The
difference between 60 and 51 votes most often is the difference
between success and failure.
In fashioning last year's budget resolution, Senate Republicans
initially thought that simply inserting the ANWR drilling provision
into a reconciliation bill would guarantee its passage. But
wavering Democratic senators scoured the reconciliation bill and
found many excuses to oppose it -- minor trims to Medicaid, Food
Stamps and student loans, for example.
Strategists now believe that the authorization to drill in the
barren ANWR wasteland can pass in 2006, but only if it is isolated
in an ANWR-only reconciliation bill.
The allure of playing the reconciliation card to uncork stalled
legislation has prompted Senate conservatives to ponder how best to
design the budget resolution for the coming year to advance a host
of other conservative legislative priorities.
Mike Franc, who
has held a number of positions on Capitol Hill, is vice president
of Government Relations at The Heritage Foundation.
First appeared in Human Events