Senate Finance Panel Hears Solutions for AMT Problem
By Stephen Cooper, Washington Staff Writer
Lawmakers in Washington are struggling to find a fix to the Alternative Minimum Tax "problem," which may cause millions of middle-class taxpayers to pay an additional tax only intended for the very wealthy. The lawmakers' problem: trying to keep people never intended to be subject to the tax from having to pay it, while still collecting the revenue anyway.
The AMT was originally enacted to address loopholes in the tax system that allowed the richest of taxpayers to avoid paying income taxes. The AMT requires certain taxpayers to compute their tax liability using an alternative method, and then to pay the higher of the two computations. Back in 1969, it affected 155 filers; because the AMT is not adjusted for inflation, an estimated 30 million taxpayers will be affected in 2010 -- including some 94 percent of married filers who have children and make $75,000 to $100,000 per year, according to published reports.
Democrats, who control Congress, maintain that any AMT reform must be offset by an increase in other taxes equal to the projected future revenues that would have been collected by an unreformed AMT.
A panel of tax experts told the Senate Finance Committee on June 27, 2007, that repealing the alternative minimum tax (AMT) could be offset by modifying or ending the deduction for state and local taxes.
The hearing was called to discuss ways to prevent an additional 23 million Americans from becoming subjected to the AMT when they file taxes for 2007. The White House has suggested a one-year patch for the AMT, while encouraging lawmakers to come up with a permanent solution.
In response to questions by Sen. Ken Salazar (D-Colo.), Leonard E. Burman, director of the Urban Institute Tax Policy Center, a left-leaning think tank, suggested that lawmakers should not find it difficult to generate $50 billion to offset a temporary one-year patch to the AMT. Burman and other tax experts suggested that offsetting a permanent solution would likely require substantial and controversial tax policy changes.
For a number of years, Congress has failed to address the growing AMT problem, opting for a series of one-year fixes instead. "But, the retroactive nature of the patches amounts to playing a game of chicken with the American taxpayer, who should not have to guess," Burman said.
Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank, said that ending the state and local tax deduction for wealthy taxpayers would be politically more feasible than raising their marginal tax rates. He also suggested capping the mortgage interest deduction at $100,000 or repealing the child tax credit.
Michael J. Graetz, professor at Yale Law School, suggested raising revenue to pay for AMT repeal by capping the state and local tax deduction or limiting the home mortgage interest deduction to only one home per taxpayer. Graetz and other tax experts suggested that the AMT be addressed during a summit comprised of lawmakers, White House and Treasury officials, and Joint Committee on Taxation and Congressional Budget Office staffers.
Such a comprehensive budget summit was undertaken in 1990 when Republicans agreed to raises taxes and Democrats agreed to cut benefits, recalled Finance Committee Chairman Max Baucus (D-Mont.).
Salazar predicted that lawmakers would likely pass a one-year AMT patch in 2007, while trying to figure a way for a permanent repeal that meets Congress' pay-as-you-go budget rules. Americans are not yet alarmed enough about the AMT to force lawmakers to reach a compromise, Salazar said.
If such a compromise includes raising federal taxes to pay for AMT repeal, it is unlikely to win the support of Finance Committee Ranking Member Charles E. Grassley (R-Iowa). He maintained that revenues projected to be collected by the AMT are revenues the tax was never meant to collect.
"To make offsetting a condition for repeal is to commit to reshape a problem without actually solving it," Grassley said.
If you filed an extension for your 2006 tax return, take a look at the Toolkit Tax Guide 2007 before the extension comes due in October. This easy-to-understand book helps taxpayers--including individuals and entrepreneurs--identify the benefits before them and manage their taxes so they can better prepare their 2006 tax returns, as well as begin planning for 2007. It also includes free income tax preparation of a state and federal return and e-filing with CompleteTaxTM, CCH's easy-to-use online tax return service for individuals. Toolkit Tax Guide 2007 is available in major retail and online bookstores nationwide; via the Business Owner's Toolkit bookstore; or by calling 1-800-248-3248.
- Related items:
- IRS Begins Tax Season With Important Issues Unresolved
- Permanent AMT Fix Poses Difficult Choices
Posted June 29, 2007.
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