Q: What is the Alternative Minimum Tax?
A: In 1969, it was discovered that 155 ofAmerica’s wealthiest taxpayers paid no income tax by utilizing legal deductions and tax shelters. In order to make sure these renegade rich paid their share, Congress enacted the Alternative Minimum Tax. This new tax was created to promote tax fairness, not to raise revenue. Unfortunately the tax has done just the opposite. It’s burdeningAmerica’s middle class and become a revenue stream to which the federal government is addicted. This happened because the AMT was never indexed for inflation. So as wages have risen, the constituency affected by this shadow tax has widened exponentially. What was created to address 155 superrich taxpayers could affect up to 23 million middle-income tax payers in 2007 and 25.7 million in 2008. The Congressional Budget Office projected that total federal revenues from the AMT will push through their 30-year historical average and will keep on increasing. The ultimate irony is that as the AMT hits more taxpayers and produces more revenue it now also fails to make sure the wealthiest taxpayers can’t avoid the federal income tax entirely. In 2004, IRS reported that 2,833 taxpayers with incomes over $200,000 paid no income tax and no AMT. Bottom line, the tax is running exactly counter to its original purpose. As chairman of the tax-writing Senate Finance Committee, I advanced a temporary fix for each of thelast six years to exempt millions of additional taxpayers from the “Accidental Middle-Income Tax.” These ‘patches’ are only a temporary fix, and with the looming expiration of the last patch, it’s time Congress tackled this failed tax policy once and for all. President Clinton vetoed legislation passed by Republican senators in 1999 that would have gotten rid of the AMT entirely. Now it’s up to Congress to take action, at the very least, on a patch to protect middle-income taxpayers from a tax they were never meant to pay.
Q: How will Congress fix the AMT for good?
A: A tax that originated as a drop in the bucket of total federal revenues has quickly become an overflowing well of tax revenue. Congress has become addicted to dipping into this abundant well at the expense of the taxpayer. The government’s addiction has created a major roadblock in the repeal of AMT. Under the ‘pay go’ rules passed the Democratic majority in Congress, taxpayer relief from a repealed AMT must be offset by revenue raised somewhere else. House Democratic leaders, bound by this ‘pay go’ straitjacket, are working to get rid of the AMT by raising marginal tax rates elsewhere. To make offsetting AMT a condition for repeal is to commit to reshape a problem without actually solving it. It’s trading one policy failure for another. Congress has another option to repeal the AMT but it requires tightening the belt on spending. First, budget planners must take off their rose-colored glasses when looking at long-term revenue projections. It’s fiscally irresponsible to spend money from this phony revenue source. Second, we must repeal AMT without an offset. This can be taken care of by a simple waiver of the Democrats’ ‘pay go’ rule. It’s time to quit punishing taxpayers with this shortsighted tax policy. I will continue to push for a repeal of this “Absolutely Maddening Tax” without an offset.