Congress Pledges AMT Relief

by Mike Godfrey, Tax-News.com, Washington

11 November 2010

US Congressional leaders have pledged to "do everything possible" to stop the alternative minimum tax (AMT) affecting as many as 21 million taxpayers this year.

Enacted 40 years ago, this parallel tax system was designed to prevent a few wealthy taxpayers from reducing their tax liability to little or nothing through the use of various deductions. However, the original legislation didn't index the tax to inflation, meaning that it has to be routinely 'patched' to avoid a situation whereby those on relatively modest incomes must calculate their taxes under AMT, adding considerably to the administrative burden.

In a joint letter to Internal Revenue Service Commissioner Doug Shulman, dated November 9, Senate Finance Committee Chairman Max Baucus (D-Mont.), Finance Ranking Member Chuck Grassley (R-Iowa), House Ways and Means Committee Chairman Sander Levin (D-Mich.), and Ways and Means Ranking Member Dave Camp (R-Mich.) said that the agency should “take all steps necessary to plan for changes” to present law.

"Under present law, more than 21 million taxpayers will be subject to higher taxes in 2010 unless legislation is enacted to limit the reach of the alternative minimum tax," the Congressmen wrote.

"As the leaders of the Congressional tax-writing committees, we want to assure you that Congress is working on legislative relief. We will work to craft the AMT provision so that, in the aggregate, not one additional taxpayer faces higher taxes in 2010 due to the onerous AMT."

Such legislation will allow the personal credits against the AMT and the exemption amounts for 2010 to be set at USD47,450 for individuals and USD72,450 for married taxpayers filing jointly, the letter adds.

Despite the widely held view in Congress that it's high time the AMT was repealed altogether, previous legislative attempts to achieve this have failed, with many lawmakers worried about how the foregone 'revenue' will be replaced. Under current budgetary rules, AMT revenues are worth about USD60bn per year.

Shortly after taking office in 2009, President Obama said he wanted Congress to stop accounting for AMT and other phantom revenues as part of plans to overhaul budget rules. Later that year, Baucus introduced legislation that would permanently index the AMT to inflation, precluding the need for Congress to enact its annual 'patch.' However, in the rush to pass other important tax legislation, such as the extension of temporary tax cuts, and with the government facing record deficits, these initiatives were shunted off the agenda.

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