Gotta Love Those Conclusory Statements

It's not unusual to see an editorial present a conclusory statement, and then to extrapolate from that statement as if it is gospel. (Consider, e.g., Richard Posner's recent editorial in the New York Times, in which he postulates that the media has a liberal bias which is increasing, without presenting any evidence or authority for his position - the type of reasoning which would surely inspire him to at least metaphorically rap one of his law clerks across the knuckles. The best "evidence" he presents is that a disproportionate number of reporters, as compared to members of the public at large, self-describe as "liberal" - at most a feather on his side of the rhetorical scale, particularly given the manner in which editorial policy is largely dictated by giant corporations and media conglomerates.)

I was reminded of this by an unsigned editorial in today's Washington Post, on the subject of the Alternative Minimum Tax, its growing reach into the pockets of the middle class, and the complete lack of will by Congress (despite years of gleeful tax-slashing for the rich) to reform the program. After speaking to those issues, the editorial asserts,

Are no repairs to the AMT possible that would allow it to continue? It can be indexed for inflation, perhaps. But that won't do anything about the real problem, the basic fact that the AMT lacks any legitimacy as a source of broad-based revenue for Uncle Sam. Other than expediency, there is no legal or moral principle on which it can be defended.

I guess it is technically true that an AMT-style system could be woven into the tax code at large, such that just as there are thresholds that must be crossed before certain expenses become deductible, there could be caps on how much may be deducted - in the manner of the cap on the mortgage interest deduction. But I am not sure of the glory in endorsing a clumsy and inefficient means to the same end over something that, at least as intended, would be more simple and more fair. All else being equal, what's the crime in expediency?

The purpose of the Alternative Minimum Tax was to prevent the rich from deducting away their income tax such that they paid little or nothing, while the poor and middle class continued to shoulder their intended burden. The effect of the AMT has been mixed - the wealthy have developed new methods of sheltering their income from taxes, and have been incredibly successful at lobbying the government (particularly the present administration) of redesigning the tax code in their favor. It is in no way "immoral" or "illegal", as the Post's language implies, to create a system such as the AMT to ensure that even the wealthy pay their fair share of the nation's taxes. There is certainly nothing moral in perpetuating the current AMT system, which will soon treat the mortgage interest deduction of many middle class homeowners in the same manner as a billionaire's overseas tax shelter.

The editorial is also, perhaps intentionally, misleading in bringing up the sad story of people who were left with unmanageable tax debt as a result of the AMT, making it sound as if this is the norm for people who receive stock options as opposed to the exception. Prior to the burst of the "dot com bubble", many employees were urged to exercise their options and hold on to the stock. An employee who exercised a stock option while a stock was at $100, but was left after the bubble burst holding a stock that was worth $1, could face an enormous tax liability on money that, from the employee's perspective, existed only on paper. (A similarly situated employee who exercised the stock option while immediately selling the stock would have the same tax liability, but would have the proceeds of the stock sale from which to pay the taxes.)

Even if you assume that the AMT is "immoral", the choice is not available to abolish that tax. Congress has no intention of abolishing the AMT, and President Bush has been particularly cautious about its mention (even though he has to know that it will ultimately claw back most of the middle class tax cuts he used to justify much larger tax breaks for the rich.) So if your choice is between two evils - leaving it as it is, or adusting the AMT so that it takes into account the tax shelters created to avoid its present reach and indexing it to inflation such that it does not affect the middle class - why not pick the lesser evil?