Rep. Louie Gohmert mischievously stepped past President Obama to swipe the name planned for the President’s big, insanely expensive “jobs bill.” While Obama was busy traveling around the country at taxpayer expense to demand immediate passage of his bloated, still-mysterious bill, Gohmert actually got some legislation filed in the House of Representatives.
Obama’s bill has a price tag that could exceed $650 billion, if his proposed “infrastructure bank” gurgles out of the vote-buying Slurpee machine in its full, slush-fundy glory. It includes dozens of big-ticket federal spending programs, some of which a very tenuous connection to private sector job growth.
Gohmert’s American Jobs Act of 2011 is much simpler. It only has two action items: repeal the corporate income tax, and repeal the Alternative Minimum Tax. How much would that cost us?
The Alternative Minimum Tax, basically a bear trap designed to catch taxpayers who navigate the maze of federal deductions too successfully, is tricky to model because it’s so unpredictable. I’ve seen estimates of anywhere from $800 billion to $1 trillion in lost revenue over the next ten years if we repeal it. Let’s go with the high number and say a trillion. That works out to $100 billion per year, or less than one-sixth of the cost of Obama’s “jobs bill” – which, keep in mind, the President proposes to fund with a mixture of job-killing higher taxes and more deficit spending, unless the deficit-busting Super Committee can find a couple hundred billion for him somehow.
The AMT primarily hits people with six-figure incomes… specifically, small-business owners. When it was originally created in 1969, it was aimed at a tiny group of less than 200 very wealthy families, but the income threshold was not pegged to inflation, so it’s been hitting a rapidly growing segment of the population. The AMT has grown at a blinding pace since 2000, and last year affected 4.5 million taxpayers, as this chart from Veronique de Rugy shows:
De Rugy, incidentally, quotes no less than Rep. Charlie Rangel (D-NY) – whose dislike of paying taxes is well known, but who is usually eager to impose them on other people – describing the AMT as “a monster.” Surely that means there would be broad bipartisan support for slaying it!
A 2006 CNN/Fortune article explains why this tax hits small businesses so hard:
While it is thought of as a tax on individuals, the AMT stealthily strikes harder at small-business owners than at wage earners. Why? For starters, successful entrepreneurs tend to earn more. And 90% of small businesses have their profits taxed as personal income, regardless of whether the firm is organized as an S Corp., LLC, or unincorporated business. In addition, when an entrepreneur’s income carries him into AMT land, some business deductions are not allowed. On average, those affected by the AMT paid $6,000 more in federal income taxes in 2004 than they would have under the standard calculation.
(Emphases mine.) Wait a second… you’re saying that the people who create lots of good jobs by running successful businesses are the very same evil enemies of the working people who resist “paying their fair share” by refusing to give Democrats more money to spend? Oh, dear. No one could have seen that coming. It’s going to make bipartisan support more complicated than I thought. We might even lose Charlie Rangel.
President Obama claims he is very interested in helping small business owners. In fact, he made a point of saying so when he rolled out The Bill Formerly Known As the American Jobs Act of 2011, before a joint session of Congress:
Everyone here knows that small businesses are where most new jobs begin. And you know that while corporate profits have come roaring back, smaller companies haven’t. So for everyone who speaks so passionately about making life easier for “job creators,” this plan is for you.
If the President meant a word of that, he’ll be all over getting rid of the Alternative Minimum Tax!
As for the corporate tax Gohmert wants to zero out, the Heritage Foundation took a long look at the idea in 2009, and came up with an estimated loss of $300 billion in annual tax revenue. In return, visiting fellow in macroeconomics Karen Campbell estimated the following beneficial effects:
2 million more jobs than the baseline scenario;
$280 billion more in real (inflation-adjusted) gross domestic product (GDP);
$4,000 more in real disposable income for a family of four; and
$707 billion more in household net wealth-the base of economic strength and stability.
Campbell’s introduction does a great job of explaining why repeal of the corporate income tax would have such remarkable economic benefits:
Entrepreneurs are among America’s greatest resources. These individuals try to change the status quo because they expect to use resources to create higher value than those resources are currently producing. This takes investments, and investments are risky. The return to these investments is the economic growth that they create, which is profit. Yet the government often taxes these profits twice, once at the business level and then again when the profits are distributed to individuals.
This double taxation not only dampens the incentive to invest, but also obscures who actually bears the burden of these taxes. Corporations are often personified and demonized, but a corporation is a legal entity, not an actual person. Because a corporation is made up of a group of individuals but is not actually an individual, corporate taxes are really taxes on the stakeholders in the corporation. In a U.S. Treasury report, William Gentry points out that empirical studies show that employees and consumers really bear the cost of corporate and investment taxes.
(Emphases mine.) The Treasury report she mentioned found that “employees pay about 60 percent of the corporate income tax in lower wages.” The extra $4000 in annual disposal income Campbell mentioned as a benefit is roughly comparable to the amount Obama endlessly congratulates himself for tucking into our pockets through his payroll tax cut… which is coming out of the already-unsustainable Social Security program. Wiping out corporate income tax would convey that benefit without stealing the funds from an already insolvent welfare program.
So, let’s total up the bill: that’s $100 billion a year for killing the Alternative Minimum Tax, plus $300 billion for reducing corporate taxes to zero, giving us a total cost of $400 billion for the Louie Gohmert American Jobs Act of 2011.
Why… that’s even less than the cost Obama was throwing around for his bill when he rolled it out last week, before we found out it would cost even more! He said $450 billion last Thursday. We could have the Gohmert bill for $50 billion less, and its real, honest-to-God job-creating stimulus effects would be gigantic! Along the way, we’d get rid of the AMT everyone hates, and the most dishonest hidden double tax currently inflicted upon the American people. Why should we regard this unthinkable, while we have to pretend to take Obama’s latest multi-billion dollar vote-buying scheme, packed full of proven-failure ideas, as a serious proposal?
What more can I say? Pass this bill!