NCPA - National Center for Policy Analysis


October 18, 2007

Democrats are planning a temporary measure that would prevent the alternative-minimum tax (AMT) from hitting more people this year and extend several popular tax breaks for individuals and businesses, says the Wall Street Journal.

  • The AMT is a parallel income tax originally designed to prevent very wealthy people from avoiding taxes altogether, but it has been biting deeper into the middle class and is expected to hit 26 million people this year, without new legislation.
  • The change under consideration would protect most of those people, roughly 20 million, from the AMT, reducing their tax bill by about $50 billion this year.
  • Complicating the situation are pay-as-you-go budget rules, which Democrats reinstated when they took control of Congress this year, which require new spending or tax cuts to be financed by offsetting spending cuts or tax increases.
  • The tax package would be worth between $65 billion and $85 billion, and the rules require any tax cuts and spending increases to be offset.

If lawmakers stick to pay-go, a variety of controversial offset proposals floated throughout the year could gain momentum -- and new ones are likely to surface, says the Journal.  Lawmakers have floated limits on certain tax-deferred compensation plans used by executives, or on the ability of hedge-fund managers to defer taxes by holding their money offshore.  In the House, some want to increase taxes paid by private-equity managers and others on "carried interest."

Source: Sarah Lueck, "Democrats Plan Stopgap Measure to Curb AMT," Wall Street Journal, October 18, 2007.

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