Baucus, Conrad Support 2-Year AMT Patch; Rangel, Neal Embrace Repeal - Federal Tax Policy - Federal Budget & Tax

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Monday, March 05, 2007

Baucus, Conrad Support 2-Year AMT Patch; Rangel, Neal Embrace Repeal

Senate Finance Committee chair Max Baucus (D-MT) has abandoned his support of full AMT repeal and joined with Senate Budget chair Kent Conrad (D-ND) in favor of a two-year AMT patch.

Their position is already part of a Senate bill (S. 619) introduced by Sen. Charles Schumer (D-NY) along with nine co-sponsors. The proposal would cost more than $90 billion over 10 years, but nobody has said yet how or even if it would be offset.

Such a proposal might give the Democrats a winning position on an increasingly salient issue by shielding upward of 20 million mostly upper-middle class taxpayers from AMT liability through the 2008 elections.

According to a JCT report released today, only 1.6 percent of those earning $75-100,000 a year would continue paying the AMT; without the patch, 49 percent of them would have to pay it (see Table 2).

But in the House, Ways and Means Committee chair Charles Rangel (D-NY) and Select Revenue Measures Subcommittee chair Richard Neal (D-MA) have other ideas: permanent repeal of the AMT, which would cost roughly $1 trillion over 10 years, a price no one has begun to propose paying for.

Full repeal would throw the baby out with the bathwater. On the other hand, as David Cay Johnston pointed out in yesterday's New York Times Week-in-Review, the original goal of the AMT is further than ever from being met:

A far greater number of well-off families still pay only small amounts of tax. More than 41,000 taxpayers with incomes of $200,000 or more in 2003, the last year for which figures are available, paid less than 10 percent of their income in individual income taxes. And the number of untaxed high-income families — once 155 [when the AMT was introduced in 1969] — grew to 2,824.

Given that the AMT now brings in more revenue than the regular income tax, replacing that revenue presents an almost insuperable political challenge. A two-year patch seems politically appealing enough, and affordable by comparison.