Saved from the tax man … for now

Tens of thousands of Nevada households dodged a big tax increase Wednesday when Congress finally, thankfully, got off its collective duff and passed alternative minimum tax relief that won’t fall victim to President Bush’s veto pen.

Now the bad news: The AMT “patch” that prevents it from reaching into 20 million mostly middle-class families is good for only the current tax year. That means taxpayers will ring in 2008 not only worrying about the possibility of a recession, but assuming that they could be hit by a much bigger income tax bill the following year.

It’s bad enough that the AMT continually rises from the grave like some half-decomposed, flesh-eating zombie, but the sales tax deduction that shaves hundreds of dollars off the typical Nevadan’s filing also expires at the end of this year. So taxpayers who live in one of the eight states that have no income tax are in line for a double-whammy come April 2009.

Delegations are already offering assurances that they’ll figure out a way to pass more patchwork extensions, perhaps as early as January. But this month’s protracted partisan wrangling ran weeks longer than last year’s game of tax-policy chicken. Given the delays this has already brought to the coming tax season, it’s not a stretch for the public to speculate that an election-year Congress won’t jerk the steering wheel in time to avert disaster.

“It is a very unfortunate situation and, given the state of the economy, it is even more unfortunate,” said Carole Vilardo, president of the Nevada Taxpayers Association. “Congress is not creating predictability.”

Lawmakers have a dirty little secret: They like it that way. The tax code is their single most powerful tool in rewarding special interests, punishing enemies, redistributing income and manipulating behaviors. Abolishing the AMT once and for all and creating a permanent deduction that lets taxpayers chose between writing off their state income or sales taxes would limit lawmakers’ leverage. Predictability comes at the cost of power.

The chance that Congress would ever throw the entire IRS code in the trash in favor of a vastly simplified system of taxation? Forget about it.

These days, Democrats oppose extended relief on the grounds that they amount to tax “cuts” that must be “paid for.” It’s a savvy shell game, where they spend like trophy wives all year, as though the AMT and various deductions won’t be renewed, then cry that any reauthorization will put the country in debt unless taxes are raised elsewhere. The tactic has the larger effect of making further tax cuts, like the economy-stimulating reductions ushered by President Bush and Republicans in 2002, all but impossible.

Democrats caved this week only because they feared being labeled as tax hikers in next year’s campaign. Rest assured, they’re already plotting how to spend next year’s ill-gotten windfall and shove the bill on someone else. Never mind that the AMT, passed almost 40 years ago to penalize the ultra-rich but not indexed to inflation, wasn’t ever intended to extract $50 billion per year from middle-class households. Greedy lawmakers already made the sales tax deduction disappear from the tax code once before, in 1986, before reinstituting it in 2004. They can make it go away again.

All because Washington can never get enough of your money.