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BILL THOMAS: DIABOLICAL GENIUS?

December 08, 2005

When Ways and Means Committee Chairman Bill Thomas left alternative minimum tax (AMT) relief out of his version of this year's Tax Reconciliation bill, he said he was doing it to spur debate on tax reform. Of course, I mocked this idea:

That's a bit like spurring debate on fire-sprinkler laws by committing arson.

Now Mr. Thomas may have the last laugh. He appears to have been playing a deeper game than he let on. It happens than AMT falls disproportionately on the "blue" states -- states where Democrats are ascendant. This is because blue states tend to have high state income taxes; these aren't deductible for AMT and therefore make AMT routine for two-earner upper-income couples in high-tax states. As a result, Democratic legislators overwhelmingly favor the AMT relief bill; failure to extend AMT relief set to expire this year would result in a big blue-state election year tax increase in 2006.

Mr. Thomas left the AMT relief out of the reconciliation bill so he could include an extension of lower capital gain and dividend rates under its revenue cap. For arcane reasons the reconciliation bill can pass with only 51 votes in the Senate.

Mr. Thomas's deeper game? If the 414-4 vote in favor of stand-alone AMT relief in the House yesterday is an indication, the Democrats will pass AMT relief anyway, so he didn't need to waste the budget cap in the reconciliation bill on it. If the Senate Democrats also pass stand alone AMT relief, and the Tax Reconciliation is enacted with extended capital gain and dividend rate relief, I will have a new respect for Mr. Thomas's machiavellian ways.

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