Senators Push Alternative Minimum Tax Repeal

May 23, 2005

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Senators Propose Repealing Tax Aimed at Wealthy, Hitting More Middle Class (Washington Examiner)

It was intended to catch wealthy tax dodgers, but instead has crept closer to the middle class over the years. So a bipartisan group of senators wants to eliminate the alternative minimum tax even though it would deprive the government of billions of dollars in revenue. Four senators – two Republicans and two Democrats, including leaders of the Senate Finance Committee – planned to introduce a $611 billion bill this week that would repeal the tax. The committee scheduled a hearing Monday to examine the uncontrolled expansion of the tax.

“It’s become mainstream,” said the committee’s chairman, Sen. Charles Grassley, who said he paid an extra $75 this year due to the alternative minimum tax. “If we do nothing, the situation will get worse. It’s a mess, and we need to clean it up for good,” said Grassley, R-Iowa. Joining Grassley in the repeal effort are Sen. Jon Kyl, R-Ariz., and Democratic Sens. Max Baucus of Montana and Ron Wyden of Oregon. Baucus is the top Democrat on the Senate Finance Committee. They object to the tax’s growing reach and the burden it puts on unsuspecting taxpayers – higher tax rates and fewer tax breaks. Those affected must calculate their taxes twice, under the regular tax system and then the alternative system, and pay the higher amount. “The time and the bureaucratic water torture that this tax puts people through just seems to me to cry out for reform,” Wyden said.

Congress came up with the tax in 1969 after discovering that 155 wealthy individuals had paid not a penny in taxes. At the time, lawmakers estimated the tax would affect one in 500,000 taxpayers. As a result of inflation, an increasing number of taxpayers are covered by the tax. The Congressional Budget Office last year predicted that the tax could hit as many as one in five taxpayers in 2010, including virtually all married couples with incomes between $100,000 and $500,000. The CBO also said the tax no longer fulfills its original mission to ensure that the wealthiest pay some tax.

One hopes they succeed. Of course, this demonstrates what happens when the tax code is used for social engineering. A flatter tax would avoid the need for such machinations.

2 responses to “Senators Push Alternative Minimum Tax Repeal”

whatever

May 23, 2005 at 9:27 am

Uh, the AMT is a flat tax. It eliminates deductions, etc. The effective flatter tax is higher, but it eliminates all the special goodies.

I am all for repealing it, however, but also keep in mind that the “middle class” this tax is currently hitting are called “the rich” when other tax increases and phase-outs are proposed by democrats (“rich” can be as low as $50K in these instances). And no one is whining about the middle class that would be hit with a HUGE tax increase with the increase of social security to incomes above $90K (yes, in parts of the U.S. – especially the coasts – income in the low six figures is middle class)
James Joyner

May 23, 2005 at 9:48 am

The difference, though, is that the AMT is a flat tax in the context of a deduction-laden system. People make economic decisions based on deduductions and then wind up not getting them. It creates a multi-tiered code.