Bill Thomas (R - Calif), Chairman of the tax writing House Ways and Means Committee stated on Wednesday that he must decide whether to include either a two-year extension to the dividends and capital gains tax cut or a one-year extension to a temporary Alternative Minimum Tax relief measure in a new tax bill.
Thomas told reporters earlier this week that it is unlikely that both measures can be included in the bill without the items exceeding the $70 billion limit laid down in the GOP's budget.
"I'm weighing them," Thomas remarked. "The scale hasn't shifted yet."
On the one hand, Thomas can afford to delay the extension of the dividend and interest tax cuts, which are expected to reduce revenues by around $20 billion, as these are not set to expire until 2008. However, he is also aware that jettisoning these tax cuts, which reduced rates to 15%, may weigh heavily on the financial markets and could “spoil” the advantage to tax cuts in 2007 and 2008.
On the other hand, enabling the one-year fix to the AMT, costing $30 billion, would prevent millions more being dragged into a system designed to prevent millionaires from paying little or no tax.
In its final report released earlier this week, the Presidential tax reform panel recommended that the AMT, which is projected to raise the taxes of more than 21 million taxpayers in 2006 and 52 million taxpayers by 2015, should be eliminated. According to Thomas, not acting to soften the blow of the AMT could actually provide an impetus for its repeal, and for wider tax reform generally."Would it make sense to soften the blow right before you're trying to look at a change in structure to deal with that very issue, or might it not help the momentum on tax reform if a few more people fully understood the impacts of AMT?" he asked.
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