Maxine Waters Blames Bush

Maxine Waters made her first significant statement after being formally charged by the Ethics committee in the House and she blamed Bush.

Embattled Rep. Maxine Waters on Friday blamed the Bush administration for her ethics problems -- saying she had to intervene with the Treasury Department on behalf of minority-owned banks seeking federal bailout funds -- including one tied to her husband -- because the Treasury Department wouldn't schedule its own appointments.

The California Democrat said in a Capitol Hill news conference -- an event rarely held during a congressional recess -- that she reached out to then-Treasury Secretary Hank Paulson in late 2008 when his department failed to respond to the National Bank Association's request for a meeting

The worst thing for the Obama administration is for both the Waters and Rangel trials to turn racial. If that were to happen, he'd be stuck between the proverbial rock and hard place.

If he were to sign on to the idea that the charges against both are racist in nature, that would turn off most of the electorate. If he didn't however, that would turn off African Americans. Either way, he'd lose support somewhere. Already, we're getting more and more support in mainstream liberal thought that these charges are racist in nature. Kirsten Powers made the suggestion on Special Report on Thursday. It's clear that Maxine Waters will make race an issue in her trial and if Rangel does the same, that would amp up racial tensions exponentially.

Either the Democrats are Confused...

Or, I'm confused. There's two stories today that simply don't make sense together. First, here's the bold proclamation by Max Baucus.

When it comes time to vote, every Democrat in the Senate -- and perhaps more than one Republican -- will support legislation overhauling the nation's health care system, the chairman of the Senate Finance Committee predicted Thursday.

That assertion by Sen. Max Baucus, D-Mont., was a notable show of confidence coming in the midst of negotiations with Majority Leader Harry Reid and White House officials to finalize legislation that can satisfy liberal Democrats without alienating moderates -- and get the 60 votes needed to advance in the 100-seat Senate.

So, if you do the quick math, Baucus is predicting that the Democrats will get at least 61 votes when health care reform comes in front of the Senate. So, I was confused when I read this.

A key House committee on Thursday quietly altered its health care legislation in a way that could allow the Senate to mow over Republican opposition to Democratic reforms by exploiting a budgetary loophole.

The Ways and Means Committee adjusted its health care overhaul package so that the Senate, down the road, could avoid a filibuster and pass health care reform with a smaller number of votes than normally required.

I was even more confused when Charlie Rangel justified the procedural move by saying this.

the action was necessary because there is a possibility that a handful of Senate Republicans could choose to engage in partisan tactics to stall this important health reform bill.

Normally, 60 votes are required to cut off debate in the Senate. Yet, under the rule known as "reconciliation" debate can be cut off with only 51 votes. Reconciliation is reserved only for budgetary issues like tax increases and cuts. This procedural move by the House committee paved the way for the health care bill to qualify for reconciliation.

So, on the one hand, Max Baucus says that there will be more than sixty votes once the bill is ready for a vote. On the other hand, the Democrats are paving the way to pass it with 51 votes. More than that, Rangel is blaming Republicans for this. If Baucus is sure that all Democrats will be on board, how can Republicans be the problem? If Republicans are the problem, then doesn't that mean that Baucus is a bit bold in his proclamation that all Democrats are on board?

This latest incident is indicative of a different problem. The Democrats refuse to take a stand on anything. They can't decide if the public option will or will not be in the final bill. They can't decide who to tax and how much. They can't decide on anything. They can't even decide if they will or will not use a procedural technique to pass health care reform.

With confusion comes distrust and that's just one reason why approval for health care has cratered. Even those that favor health care reform, and even this health care reform, must admit that the Democrats have totally screwed up execution. They're sort of like the lax parent that simply refuses to set any boundaries with their kids. The leadership refuses to take a stand on anything. They refuse to put a line in the sand on anything. As such, everything remains on the table. How can the public get behind anything if they don't know what anything is?

It's also indicative of the larger problem they simply won't come to grips with. If they did put a line in the sand, they simply wouldn't have the votes to pass. The president wants the public option but would take a bill without it. The problem is this. With a public option, he'll lose most moderates and no longer have the votes in either chamber. Without it, he'll lose a bunch of House liberals and not have the votes to pass. They don't have 60 votes so they can't pass the bill that way. Yet, if they tried reconciliation, they'd lose enough votes and still not pass it.

So, rather than come to grips with reality, Democratic leadership leaves everything open and continues negotiating hoping that the math will somehow magically change. Ultimately, health care reform comes down to the Democrats' governance problem. They are a series of factions all with their own agenda. The liberal wing has an entirely different agenda than the Blue Dogs. Trying to reconcile the two factions is very difficult. In fact, it maybe close to impossible. That's what the Democrats are realizing now. That's why they refuse to take a stand. Taking a stand means losing more votes than they can afford.

The AMT: A Study in Opportunism, Cynicism, and Incompetence

Last week the Congress agreed to a one year moratorium on the alternative minimum tax...

Congress on Wednesday gave final approval to a plan that will spare millions of middle-class taxpayers higher tax bills for 2007. The White House welcomed the development and said President Bush would sign the bill.

The tax reprieve postpones for one year only an expansion of the alternative minimum tax, a parallel tax system enacted in 1969 to prevent very wealthy investors from using deductions and tax shelters to avoid paying income tax altogether. The alternative tax has ensnared a growing number of middle-class Americans in recent years because the 1969 law was not indexed to inflation.

Without the fix by Congress, some 25 million filers would have had to pay the tax on their 2007 income, up from four million who paid it on 2006 income, according to the White House.

Like with many things, the politicians didn't necessarily solve anything for the long term but rather punted responsibility for a year. While they may have created a one year moratorium, they haven't dealt with the fundamental difference in the two party's approach in confronting the AMT. Until that is dealt with, there is no long term solution to the AMT.

The AMT should be studied not only in accounting classes everywhere but also in political science classes because it is a case study in opportunism, cynicism and incompetence gone wild. This tax started merely as a means of closing a loophole so that 155 fat cats paid their fair share of taxes.

The AMT was introduced by the Tax Reform Act of 1969,[1] and became operative in 1970. It was intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code of the time.[2]

The AMT is imposed under 26 U.S.C. § 55 and disallows many deductions and exemptions allowable in computing "regular" tax liability. (Regular tax liability is defined in 26 U.S.C. § 55(c)(1), with reference to 26 U.S.C. § 26(b), and does not include AMT and various other categories of taxes imposed under Chapter 1 of Subtitle A of the Internal Revenue Code.) The AMT sets a minimum tax rate of either 26% or 28% (depending on the amount of the taxpayer's "alternative minimum taxable income," as adjusted) on some taxpayers so that they cannot use certain types of deductions to lower their tax. By contrast, the rate for a corporation is 20%. Affected taxpayers are those who have what are known as "tax preference items". These include long-term capital gains, accelerated depreciation, certain medical expenses, percentage depletion, certain tax-exempt income, certain credits, personal exemptions, and the standard deduction.

The problem was that in their thirst to stick it to the wealthy Congress didn't dot every I and cross every T so to speak. What the AMT failed to do was account for inflation and soon these loopholes started to affect a lot more people than the really wealthy.

The AMT's lack of an indexation is widely conceded as a flaw across the political spectrum. In 2005, the Urban-Brookings Tax Policy Center and the Treasury Department estimated that around 15% of households with incomes between $75,000 and $100,000 must pay the AMT, up from only 2-3% in 2000, with the percentage increasing at high incomes.[citation needed] That percentage is set to increase quickly over the coming years if no change is made such as indexing for inflation. Currently, households with incomes below $75,000 are subject to the AMT only very rarely (and thus most tax advisors do not recommend computing AMT for such households). That is set to change in only a few years, however, if the AMT remains unindexed.

Of course, this isn't a problem that just came about in the last year. In fact, it has been looming for years. In 1999, it already affected one million people and the problem was exacerbated by the tax cuts of 2001.

...up from 1 million in 1999. This would make the AMT almost as common as the mortgage interest deduction is today. The AMT will be the de facto tax system for households with income between $100,000 and $500,000, 93 percent of whom will face the tax. It will encroach dramatically on the middle class, affecting 37 percent of households with income between $50,000 and $75,000 and 73 percent of households with income between $75,000 and $100,000 (compared to less than 3 percent for each group in 2002).

The expansion occurs because the AMT is not indexed for inflation and because of the 2001 tax cut. Because it is not adjusted for inflation, AMT liability tends to increase every year, even if real income does not change.

The problems with eliminating a tax almost everyone, including politicians, hates, is layered. First, despite never being meant as a tax for the masses, the Congress has become reliant on the AMT a serious source of revenue.

Repealing the AMT in 2005 would reduce revenues by $660 billion through 2014 if the 2001 tax cut expires as scheduled in 2010, and about $1,090 billion if the tax cut is extended. By 2008, it would cost more to repeal the AMT than to zero out the regular income tax. More than 75 percent of the benefits of repeal would go to households with income above $100,000 in 2010.

Thus, merely eliminating isn't as simple as it may seem. Neither side has stepped up with any reasonable solution. According to the activist web site, Reform AMT, there are roughly twenty different bills currently in one stage or another to deal with the alternative minimum tax. The Democrats version of fiscal responsibility is eliminating this insidious tax and replacing it with other taxes that are also meant only to target the rich. This is highlighted with a plan lead by Charlie Rangel. In his plan, Rangel goes after the wealthy demon du jour, private equity firms, as his main target.

Well, we haven't really concluded exactly how we're going to do it. There's some discussion as to, if there are people that are operating equitable funds and they do a good job, why should one group get taxed at a rate of 15 percent as capital gains when they've made no investment and another firm get paid at ordinary income?

Another thing that we're looking at is that we have the ability to have people who get large sums of money for pension funds to have this taken to tax havens overseas, and there's no tax consequence of it for them. Billions of dollars are lost with all of these tax schemes.

It is both surreal and absurd to watch a politician eliminate one tax that was originally meant to target only the wealthy with a series of others that they now again claim will only target the wealthy. Remember, the AMT was originally meant to close another loophole so that other fat cats couldn't take advantage of other supposed tax havens. The exact same language that Rangel is using now was used back then to sell the AMT on the public. Here is the language LBJ used when selling the AMT in its original format.

to embrace a conception of tax reform consisting in closing revenue leaks and erosion of the tax base concomitant to the many preferences that had crept into the tax code

Despite the obvious failings of the AMT, Rangel is now using much the same language to the target many of the same type of new taxes in order to eliminate the AMT.

The Republicans, on the other hand, see fiscal responsibility as the elimination of the AMT, and its hundreds of billions of dollars worth of revenues, and increasing spending at the same time. The Republican's plan is highlighted by a propsoal by Paul Ryan.

But the proposal also underscored why it will be so challenging for lawmakers to reach common ground on a permanent solution to this particular tax and budget dilemma.

The Ryan plan pointedly provides nothing to replace the estimated $840 billion in tax revenue that would be lost over 10 years with the abolition of the AMT, as it's known.

Meanwhile, neither side dares to decrease spending which would actually be the fiscally responsible thing to do when such a huge source of revenue is eliminated. The latest omnibus spending bill has 9170 earmarks.

Yet, the 2008 omnibus spending bill contains 9,170 earmarks in the 2008 omnibus spending bill. This total, in addition to the 2,161 earmarks in the 2008 defense spending bill (none of which were requested by the Pentagon), bring this year's earmark total to 11,331 earmarks for 2008, a mere 16 percent reduction compared to OMB's baseline of 13,492 earmarks in 2005. (Note: all earmark estimates exclude earmarks requested by the White House.) See Sen. Coburn's site for more details...

with such notable spending items as: Rodent control in Alaska ($113,000)Olive fruit fly research in France ($213,000)Hunting and Fishing Museum in Pennsylvania ($200,000)Louis Armstrong Museum in New York ($150,000)A bike trail in Minnesota ($700,000)A river walk in Massachusetts ($1,000,000)A post office museum in downtown Las Vegas ($200,000); andThe Lincoln Park Zoo in Illinois ($37,000).

The problem here is also more complicated than one would think. The sort of spending cuts necessary to be fiscally responsible in dealing with the elimination of such a huge source of income are impossible in this climate, in my opinion. That's because I believe that spending has become a tool of horse trading among legislators, and most of the spending has been promised as payback for support on some measure or another. I can't see Congress tightening its belt properly to deal with the reduction in revenue from the AMT because that would mean eliminating spending promised for votes.

Thus, here we are. The Congress has kicked the can on the AMT for one more year. A tax that was originally meant only for 155 people has now become so vital that it can't merely be eliminated. One side wants to eliminate and replace it with several other new taxes eerily similar to the AMT itself, and the other side wants to eliminate and spend some more. Thus, a tax that was created in an opportunistic, cynical and incompetent manner is being dealt with just the same.