HOW TO FIX THE AMT
October 11, 2007
Key House Democrats are sketching plans to stop the Alternative Minimum Tax (AMT) from hitting millions of middle-income earners this year. They want to raise some marginal tax rates to pay for it. If they do, vast numbers of people would see their taxes go up, says Sen. Chuck Grassley (R-Iowa), a ranking member of the Finance Committee.
- In 2004, AMT filers -- mostly families filing joint returns -- paid more than $12.8 billion into the Treasury.
- If Congress does not extend the most recent AMT hold-harmless provision (aka the "patch") that expired at the end of 2006, that number is projected to balloon dramatically, to roughly $65 billion in 2008.
- In that year the number of families and individuals liable for the AMT is projected to increase to 25.7 million.
According to long-term budget forecasts from the Congressional Budget Office:
- If Congress does nothing, 65 percent of American households will pay the AMT by 2050.
- Roughly 15 percent of individual income tax liability would be generated by the AMT, compared with about 2 percent today.
What needs to happen next? First, budget planners need to take off their rose-colored glasses when looking at long-term revenue projections. If we start trying to spend revenues we expect to collect in the future because of the AMT, we'll be living beyond our means. We need to stop assuming that record levels of revenue are available to be spent and recognize that the AMT is a phony revenue source, says Grassley.
Second, we need to rein in the AMT without requiring an offset. It would take a simple procedural step -- a waiver of the Democrats' paygo rule. In the Senate, it would take 60 votes to waive paygo and other budget resolution restrictions, says Grassley.
Source: Chuck Grassley, "How to Fix the AMT," Wall Street Journal, October 11, 2007.
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