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Author: Oldsterme Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 741450  
Subject: Tax Cuts Date: 3/31/2001 1:21 AM
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Is there any truth in this (from another board)?

What tax cut???

An opinion about the proposed tax cut's impact on the masses. There are exceptions.

I believe there are three basic positions on the proposed tax cut, the Reps, the Demos and Wall Street's. The Demos talk about the new rules as if everybody benefits - and that the rich are getting most of the benefits. They're wrong. The Reps also say everybody will benefit, and a tax cut will both pump up the economy and give people back what some of what they've overpaid. They're wrong too. Wall Street sees the picture as there will be no big increase in personal spending if the new rules are enacted - because the AMT will take all of the savings back. I believe Wall Street is reading the effects of the cut correctly; the cuts will have a minimal effect on personal spending because for many, the actual tax savings will be either insignificant or eliminated by the current AMT rules.

The AMT simply takes back almost all of the proposed tax cut for many, perhaps most with incomes above $100000. For example, people aged 40 +/- a few years with a lot of mortgage interest and State income tax deductions, the "maximum" savings will be less than $2500 (and maybe $500 to $1000 more for each child), but that's only for people with an income of about $100000. For people with lower incomes, the saving will drop to around $600 (plus $500 for each child), and people with incomes over $150000 won't see a penny in savings from the new tax, except possibly the full $1000 child tax credit if their income isn't over $200000. (Importantly, this analysis assumed a proportional increase in deductions with higher incomes.)

The exceptions to the AMT grab are mostly people with relatively small deductions, e.g. renters and those with relatively little deductible mortgage interest and State tax deductions whose marginal taxes under the new rules will continue to be more than the AMT. I'd expect these to mostly be relatively older, retired or almost retired people with no or very little mortgage interest. Although for the same incomes, they will still be paying more than those subject to AMT - but not as much more under the proposed rules.

The Demos don't want the big tax cut - there won't be any if the AMT remains as it is. So indirectly they'll get their wish. The Reps want the tax cut enacted, even if it's generally negated by the AMT. So they may also get what they want. Neither party appears to be seriously addressing the AMT problem. So the only ones not getting what they want are on Wall Street. It looks Greenspan will continue to have a huge influence on the economy and the markets.

The moral here is - when the government offers you something with one hand, beware of the other hand in your pocket.


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