In a February 6 article detailing the Bush administration's Fiscal Year 2008 budget, The New York Times reported President Bush's claim that the spending plan "would wipe out the deficit in five years without raising taxes." In fact, the White House's prediction that the budget will reach balance in 2012 rests on the assumption that Congress will stop raising the exemption level of the alternative minimum tax (AMT) -- an increase that the Bush administration proposed be passed again for FY 2008. Without a continuation of this temporary fix, the AMT would increase the income taxes of millions of middle-class Americans in the years to come. While the Bush administration has often stated that a refusal to extend a temporary tax cut would constitute a tax increase, and the Times has previously referred to the AMT as a "giant undeclared tax increase," the February 6 article failed to note that Bush's budget projections rely on the greater tax revenues that would be collected if the AMT fix is not extended.
From the Times article, headlined "Bush Releases Budget Aimed to Erase Deficit":
President Bush unveiled a $2.9 trillion budget on Monday that he said would wipe out the deficit in five years without raising taxes, setting up a clash with the Democratic-run Congress and charting a course for Republicans to continue his policies long after he leaves office.
Speaking to reporters after meeting with the cabinet, the president said, "We have proven, and I strongly believe Congress needs to listen to, a budget which has no tax increase, and a budget, because of fiscal discipline, that can be balanced in five years."
The article went on to quote a GOP memo urging Republicans on Capitol Hill to emphasize their efforts to "balance the budget without raising taxes":
In an internal party strategy memorandum circulated on Capitol Hill, a senior Republican aide wrote that the budget "gives us a huge (and rare, given our new status) opportunity to get a jump on the Democrats and stay on the offensive for weeks to come."
The memorandum continued, "Our message will be one that repeatedly challenges the Democrats to rein in federal spending and balance the budget without raising taxes on the American people."
But at no point in the lengthy article did the Times note that Bush's current projection of a balanced budget in 2012 assumes that, in the years between, millions of Americans would pay more in taxes as a result of the AMT.
Enacted in 1970, the AMT was originally designed to keep wealthy individuals from using loopholes and shelters to pay little or no income taxes. But because the AMT's exemption level is not indexed for inflation it has in recent years threatened to affect an increasing number of middle-income taxpayers, as Robert Kuttner explained in an April 7, 2005, American Prospect article:
[N]ow, due to inflation coupled with administration tax policies, the AMT is hitting millions of ordinary families, many earning well under $100,000 a year. Within five years, 37 percent of people earning between $50,000 and $75,000 and 73 percent of those with incomes between $75,000 and $100,000 will pay the AMT, compared with less than 3 percent three years ago. Nearly all families earning over $100,000 will pay it, according to a Brookings Institution study.
In recent years, Congress has spared many middle-class taxpayers from the AMT by passing temporary patches that have raised the exemption level at the cost of tens of billions of dollars in annual revenue. The Bush administration's new budget proposes yet another one-year patch. But the administration's long-term projections -- in which the deficit turns to surplus in 2012 -- assume that beyond FY 2008 the government will receive an increasing amount of revenue from the AMT as it affects more and more taxpayers.
The Bush administration has previously argued that a refusal to extend tax cuts represents a tax increase. For instance, in a September 21, 2006, speech, Bush warned the audience that if the Democrats gained control of Congress in the midterm elections they would not extend his tax cuts and therefore "raise your taxes":
BUSH: They may not call it a tax increase. They may want you to think something different. But if they don't extend the tax cuts that are set to expire, the working people, the small business owners, those that are struggling to put food on the table for their families, the taxes are going to go up.
Now, they're going to say -- they may not tell you they're going to raise your taxes. They're just going to say they're just going to let the tax relief expire. That's like a boss who came in and said, you know something, I'm going to let your last pay raise expire. We're not going to let it happen.
Additionally, in an April 10, 2005, article, Times reporter Edmund L. Andrews described the AMT as a "giant undeclared tax increase":
Cynics have long predicted that the Bush administration, plagued by budget deficits, will eventually start raising taxes. But now it is becoming clear how it would do so: the alternative minimum tax.
Baffling in its complexity and often bizarre in its impact, the alternative minimum tax is a giant undeclared tax increase that will ensnare tens of millions of moderate-income families in the next several years.
In contrast to the Times, numerous other print outlets noted the White House's budget gimmickry.
From a February 5 McClatchy Newspapers article:
For several years, Congress has avoided the AMT's impact on middle-class families by passing one-year patches. Bush's budget assumes no more patches after the 2008 tax year. He also assumes that new revenues from the AMT will help him balance the budget by 2012. Congress is unlikely to go along, however.
The president takes a pass on how he thinks the AMT issue will be resolved. With each passing year it would rake in more revenues for the Treasury if left unfixed -- $93 billion by 2012, according to the nonpartisan Congressional Budget Office.
From a February 6 Associated Press article:
Democrats, however, charged that the president is able to produce a surplus only on paper by using overly optimistic assumptions about how much revenue the economy will generate over the next five years and by leaving out expensive items such as further war costs after 2009 or providing money beyond this year to fix the alternative minimum tax so that it doesn't hit millions of middle-income taxpayers.
From a February 6 Los Angeles Times article:
Under the president's scenario, the deficit would remain virtually unchanged next year at $239 billion, then decline every year until 2012, when it would record a small surplus.
But that surplus develops only because the administration does not include the budgetary effects of waging the conflicts in Iraq and Afghanistan, nor of shielding middle-income taxpayers from the alternative minimum tax.
From the February 6 Washington Post article:
House Speaker Nancy Pelosi (D-Calif.) also criticized the president for allowing the alternative minimum tax to expand to millions of additional families by 2012, subjecting them to substantial tax increases. The tax was originally conceived as a way to ensure that wealthy Americans did not escape paying taxes.