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Friday, December 01, 2006
AMT Compromise: A $200 Billion Pain Reducer
Today, 3.5 million taxpayers file income tax returns under the Alternative Minimum Tax (AMT). If the
current AMT fix expires at the end of the year, the number will increase dramatically to 23.4 million in 2007 and to 32.4 million by 2010. If the Bush tax cuts are extended, 52.6 million taxpayers will pay the AMT in 2017.
Amid a rapidly-growing bipartisan congressional consensus that the AMT's creep reaches into the middle class must be stopped, two solutions are propounded:
1) continue annual patches fixing the number of taxpayers filing AMT returns -- estimated cost: $20 billion in FY2007, increasing annually
2) repeal ATM entirely and immediately at an estimated cost of $25 billion in FY 2007 and $1.2 trillion for the 2006-2015 period.
Under the rules of the brave new PAYGO world the Democrats have committed to establishing, the cost of repeal would require $1 trillion-plus in tax hikes and/or spending cuts and mean a decade of extreme pain.
Compromise Prescription: re-instate the original intent of the AMT framers by limiting liability to millionaires and, this time, index it to inflation, so the middle class is held harmless.
Cost: Using Tax Policy Center figures, when the AMT is applied only to millionaires, we project total AMT revenues through 2017 to be about $200 billion.
To get this statistic, we projected current millionaires' liability through 2017, extrapolated the growth rate in the number of millionaires liable, calculated the additional interest expense from foregone revenue, and came up with a total figure of $197 billion in savings over continued annual patches or full AMT repeal (credit to my colleague Craig Jennings, who provided the back of his envelope).
Posted by Dana Chasin
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