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THE APRIL AMT SHOCK: TAX REFORM ADVICE FOR THE NEW MAJORITY

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Abstract

dimitri b. papadimitriou and l. randall wray Anyone who reads a newspaper knows that most Americans have accumulated excessive levels of debt, and realizes that as interest rates climb, it becomes more difficult to service financial liabilities. To add insult to injury, wage growth has been slow, while prices—especially for energy—have risen sharply. What is not clear, however, is the fact that taxes have also been rising rapidly, relative to both income and government spending. In this Policy Note, we concentrate on the last issue, and argue that many middle-income earners will find themselves unprepared for the coming surprise in April. Many of our colleagues, at the Levy Institute and elsewhere, have recognized the danger signaled by changes in household debt-to-income ratios. These have been rising on trend for decades, but their rate of climb accelerated sharply in the mid-1990s as the private sector began to run persistent deficits, with only a temporary respite during the recession of the early 2000s (Godley 1999, 2003). When the Federal Reserve (Fed) began to raise interest rates two years ago, debt service ratios once again started to climb, forcing households to devote more of their disposable income to satisfying debt and interest payments. Several recent Levy Institute publications have examined thi

Year: 2007
OAI identifier: oai:CiteSeerX.psu:10.1.1.172.4980
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