RUSH: Now, the last two days I have promised to delve into some details on this AMT business. I've run across three different stories on the AMT being, you know, expanding the Alternative Minimum Tax as a way of further raising taxes and, in so doing, give politicians of both parties a pass for any culpability. So let me take a break here and I'll come back and I'll get into the latest iteration of this. I asked Senator McConnell, I talked to him this morning on the phone, and I asked him about it, he had no clue. He's not aware of anything involving the AMT. So know that going in. But we'll still tell you what is potentially on the table.
RUSH: Now the AMT. This latest story from CNBC: "One of the key questions lurking in the 'fiscal cliff' talks - though well below the public's radar." In fact, again, I asked Senator McConnell about it on the phone today and he didn't know a thing about it. He said, "I'm not hearing any talk about the Alternative Minimum Tax," but it is out there. It's in too many places. It is on somebody's drawing board. And one of the questions about the fiscal cliff talks is what happens to the AMT. The AMT, just to refresh your memory, was "Implemented in 1969 to make sure upper-income Americans pay their share of taxes."
I forget what the number is, but it was so small. There were I want to say 50 exceedingly rich people who didn't pay any income tax. And this of course was outrageous, this was unacceptable. So they came up with the Alternative Minimum Tax, made sure that everybody paid something. And what's happened, over the years more and more middle income Americans have been caught by the AMT because it was never indexed for inflation. You were able to grow your income into being subject to it. It was an oversight, but now it raises so much money they can't get rid of it. All the talk that they're gonna get rid of it or modify it, they can't. It raises too much money, precisely because it captures people it was never intended to capture. Whether it was an oversight or not, and it probably was, although that's not guaranteed, it still is what it is today.
Now, during the 2011 tax year, for example, the higher tax hit single taxpayers with incomes as low as $48,000. Now, remember, it was originally intended to snare millionaires. Now single filers with incomes as low as $48,000 and joint filers making only $74,000 have been snared, have been caught by the AMT. "But millions more Americans could be subject to the AMT in their 2012 returns if Congress fails to reach a deal on the fiscal cliff before year-end. That's because the AMT is currently scheduled to hit individuals making as little as $33,750 a year and joint filers making $45,000."
Now, normally some four million people pay the AMT, and that's according to a guy named Dick Hoey, who is the chief economist at BNY Mellon. "But if we don't fix this on the 2012 income, what's due in 2013 will be additional taxes by an extra 28 million households. If you're in the $75,000 to $300,000 income bracket, you can likely forget about a refund if they don't fix it," because the AMT is going to snare you. "The bite on American households would be huge and could have a big impact on US consumer spending -- and the economic recovery." It would average out to $3,700 additional tax owed by people who are caught by the AMT.
Now, here is the real insidious part of this. There are some people on the Democrat side who are looking at this as a golden opportunity, sort of like, you know, the Buffett Rule has a minimum rate of 30% for a million to $10 million of income, and 35% minimum rate for all income $10 million and above. So some wizards of smart have gotten together, and said, "You know what? Let's incorporate the Buffett Rule and just make it part of the AMT." What's the top marginal rate? The top marginal rate right now is 35.9%. The Buffett Rule wants a minimum 30%, the AMT. The AMT thing that I've heard about would have a minimum 30% rate on income below a million, not a million or above. A minimum 30% on, whatever, couple hundred thousand and above.
They could sign off on that, minimum 30%, realizing now, folks, that people in the 35.9% bracket do not pay that on every dollar that they earn. The first $50,000 is taxed at 15%, the next hundred thousand is taxed at 25%, and so forth, until you get to 250. Then everything above that is taxed at 35.9. It's not every dollar. And that means that the 35.9% rate is really not 35.9. It can be as low as 24, 25. It can be, depending on the kind of income you have, it could end up being 17 or 18% if you have a lot of unearned income like clipping coupons on bonds, stocks, that kind of thing. So keep that in mind.
RUSH: Let me wrap this up. The 35.9% tax rate, the current high tax rate, the thing to understand in this AMT discussion is that nobody really ever pays 35.9% on everything that they earn. Oftentimes it's lower than that. Using numbers on the radio is very difficult, but there are different tax brackets, and I think some millionaires do pay 35.9 on every dollar they earn. You've gotta start at a relatively high income level for that to happen. But many don't. And you hear all the time, you look at Obama, he's in the 35.9% bracket, look at his tax return, what was the effective rate? He paid, what, 22% on it. And that's because of deductions, it's being able to deduct dollars off the top from the gross.
So the 35.9% rate, without getting into all the whys and wherefores, it's not because it's unfair, it's the law. Don't misunderstand. I'm not saying anybody's skating. The marginal rate means the last dollars you earn, the rate on the final dollars you earn. So, you got the top rate of 35.9, Obama wants to raise taxes on the rich, the Republicans don't. Over here is the AMT and Warren Buffett, and Buffett wants a minimum 30% tax rate, much less than 35.9. But 30% is higher than almost everybody in the 35.9% bracket is paying.
My point is that if you install a 30% minimum rate on income over $250,000, you are jacking people's taxes up like hell, like crazy. An unbelievably high amount of tax increase. But it's still lower than 35.9. So, as far as anybody's concerned, it's not a tax rate increase. It's the application of the AMT to all income starting at 250 grand up, 30% on everything is a lot more than the current 35.9 because as part of tax reform, bye-bye deductibility on charities, bye-bye deductibility on the home mortgage interest, all these things that are gonna be taken away. And notice it's the Republicans who are proposing -- it was Romney who proposed closing loopholes without raising the rates, Democrats went along with this, they like it, too. You close loopholes, i.e., you eliminate deductions, you leave the rates where they are, hello AMT at 30%, and you have massively increased taxes, and nobody's rate has gone up.
That's the trick. That's what I've heard is lurking out there as a possibility, and the reason that it's being looked at is that every politician -- left, right, Democrat, Republican -- it's attractive. The Democrats get to say they're raising taxes on people. The Republicans get to say that they're not raising taxes on the rich. The 35.9% bracket stays where it is. It's being replaced by a 30% bracket in reality that none of them are paying. It'd be a massive tax increase on everybody, at 250 grand up. It would have the corresponding horrible impact on the economy. This would impact every small business.
You put a minimum 30% tax bracket or rate on small businesses, you take away deductions, many of these people file their sub-S business on their personal 1040 tax form, folks, it would be devastating. It would be right up Obama's alley. But the problem with it is, it looks, on paper, entirely palatable because while there is a minimum rate being established, it's well below the 35.9. Even the top rate in Buffett's plan where you make ten million or more, you pay a 35% rate, even that is lower than the current top bracket of 35.9. Not by much, but it's still lower. It still allows everybody in Washington to say that they're not raising tax rates, when in fact they are. They're not raising tax rates per se. They're attaching a minimum, and they're taking more money from people, is the bottom line, without it looking like that's happening. That is the value of the AMT, and it's floating around out there.
Now, the stuff that I mentioned moments ago about how it's gonna hit more and more Americans, that's gonna happen regardless. That's gonna happen, more and more people are gonna get snared by it because it's not indexed to inflation and more and more Americans are gonna find themselves subject to it if something isn't done about it in the fiscal cliff deal. Obama's proposal on the fiscal cliff is such that he doesn't want a deal. Make no mistake about it. Nobody is gonna get off the dime with an original proposal of $1.6 trillion in new taxes. But he wants it. Don't think for a minute he doesn't want it. He wants $1.6 trillion in new taxes. And however he can get it, he'll do it, and if he can get it with keeping the top rate 35.9, he'd do it.
So I don't know what the likelihood is. Like I say, Senator McConnell says he doesn't know anything about it. But it's being floated. I know that it's being talked about. It's one of those things that you need to keep an eye on. It may never happen. It would be devastating to the economy. It'd be one of the greatest transfers of wealth from the private sector to the public that we've seen, all while marginal income tax rates aren't going up. That's the attraction of it to everybody in Washington who wants more money to spend.