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Monday, February 19, 2007
A Few Options for Fixing the AMT
On Friday, there was a great article ($) in the Wall Street Journal about the AMT and some of the options Democrats have in fixing it. The article's strength, however, is in its summary of the AMT.
The Bush tax cuts have accelerated the AMT's reach into the middle class, by reducing the amounts those households would pay under the regular income tax. That's particularly true for families claiming multiple child credits.
The White House and key lawmakers in both parties agree some kind of fix should be enacted to prevent the AMT from reaching further into the middle class, at least for this year. The big question: If Congress passes a bill raising taxes to finance such a measure, would President Bush, a staunch opponent of tax increases, veto it?
Mr. Bush is likely to remain firmly opposed to raising marginal tax rates. But administration officials have been quietly suggesting that he wouldn't necessarily object if Democrats passed a "revenue neutral" bill that cut taxes paid under AMT and raised them elsewhere to offset any revenue lost to the Treasury.
Though short of an in-depth discussion about various tax code changes that could off-set AMT revenue losses, the article does mention these proposals:
A group of Democratic senators yesterday unveiled a proposal for new middle-class tax breaks, including extending AMT relief for two years. A spokesman for one of the sponsors, New York Sen. Charles Schumer, said the lawmakers would suggest paying for that relief through some combination of higher taxes on oil companies, higher taxes on families making more than $400,000 a year, and ramping up enforcement to grab more of the "tax gap," taxes that the Internal Revenue Service says are owed but persistently aren't paid.
The chairman of the Senate's tax panel, Montana Democrat Max Baucus, recently proposed eliminating the AMT.
Beyond the next year or two, House Democrats are studying how they might enact a longer-term AMT reprieve for some taxpayers. One option under discussion would permanently exempt households with annual incomes of as much as $250,000 from paying the AMT, with some kind of graduated relief for those between $250,000 and $500,000. To offset the revenue shortfall, people making more than $500,000 a year could be required to pay more tax, either through a higher AMT rate, or higher regular income-tax rates.
Posted by Craig Jennings
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