Friday, February 23, 2007

Wall Street Journal Blames Clinton Again

The Wall Street Journal tells us that "the politician most responsible for the AMT's relentless expansion in recent years is none other than William Jefferson Clinton."

As part of the 1993 tax hike, the alternative minimum tax rate was increased. There was an exemption, which was not indexed for inflation. "From 1992 to 2002, this Clinton stealth tax hike increased sixfold the number of filers paying the AMT, to nearly two million from 300,000."

For years the WSJ editorial board has had something of a mania about Clinton. During his presidency they developed the "Bill Clinton, Threat or Menace?" editorial into a dependable product, like a meal at McDonald's. As soon as his name appeared on the left hand side of the editorial spread, you had a pretty good idea of what you were going to get. So perhaps it's not surprising to read once again that It's All Clinton's Fault, even though he's been out of office for some time.

However, the Republicans took control of Congress in January 1995, and the White House in 2000. The lion's share of the growth in the number of Americans paying the AMT happened on their watch. Their party has been enthusiastic about cutting taxes (if not spending) and indexing the AMT exemptions would in theory fit perfectly with their ideological preference for a simpler and less progressive tax structure. And yet, nothing was done. Why?

Public choice theory explains why. Any change in policy creates winners and losers. An elected official can improve his chances of reelection by making choices where the benefits are obvious but the costs are less obvious, even if that isn't the decision that creates the greatest good for the greatest number.

A self interested politician will prefer when possible to shift costs from current voters to future voters: after all, he may no longer be in the political marketplace when the pain of the future cost is felt. And if he must impose costs on the electorate, he will prefer stealthy mechanisms to transparent ones.

For Republicans, the fact that the AMT falls disproportionately on taxpayers in states that tend to vote Democratic is an extra added bonus.

So most of the growth in the impact of the AMT can be blamed not on a devilishly clever Bill Clinton, but on mostly Republican lawmakers following their political self interest rather than their supposed ideals.

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