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June 19, 2008

Comments

The use of tax cuts that were temporary (that expired after a number of years) was employed by the Bush administration to help bolster the case that the tax cuts would pay for themselves.

They projected future economic growth (that hasn't been achieved to the same extent) and took advantage of the tax cuts eventually lapsing (with resultant increases in revenue) to make estimates that showed an eventual budget surplus in the near future.

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Additionally, if the tax cuts were written with a built in lapse there wouldn't have to be spending cuts, as mandated by general pay-as-you-go rules in Congress. Passing a tax cut that isn't paid for is easier than having to choose between tax cuts and spending cuts.

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In terms of the AMT, it has been "patched" year after year. It doesn't necessarily need to be repealed as much as it needs to be "fixed" to eliminate “unintended” tax increases that result generally from inflation.

Still, when it is "fixed" it will have a big impact in reducing tax revenue (just as the “patch” reduces revenue year after year). This is sort of a no-win situation for either party because making a permanent fix needs to be off-set by other types of tax increases (or spending cuts).

We are already expecting the “excess” AMT revenue because previous budget projections gave the Federal Government credit for that “extra” AMT revenue (even though temporary fixes were being enacted year after year).

From the tax-payer point of view not having a patch amounts to a tax increase - so a patch is a tax cut you don't really get credit for as a politician.

For these reasons it’s a tough issue to address completely by either party, and both parties are going to be tempted to gravitate toward a continued “patch” approach.

If McCain is singled out in this regard its mostly because he was bolder about addressing the issue earlier, but really both platforms should embrace long-term AMT fixes.

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