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Senators Seek Permanent Solution To AMT Problem

by Mike Godfrey, Tax-News.com, Washington

24 May 2005

A bi-partisan group of Senators is backing new legislation that will eliminate the Alternative Minimum Tax by the end of the decade at a cost of $611 billion.

The latest attempt to bring the AMT to the top of the tax reform agenda has been brought by Chuck Grassley and Max Baucus, Chairman and ranking member respectively of the Senate Finance Committee, Sen. Ron Wyden, (D-Ore) and Jon Kyl, (R-Ariz).

At a hearing in Washington yesterday entitled: 'Blowing the Cover on the Stealth Tax: Exposing the Individual AMT', testimony was given by various Treasury officials and tax experts including the Honorable Robert Carroll, Deputy Assistant Secretary for Tax Analysis, Dr. Douglas Holtz-Eakin, Director, Congressional Budget Office, and Nina E. Olson, National Taxpayer Advocate.

The AMT is a shadow tax introduced in 1969 to ensure that the wealthiest Americans make a sufficient contribution to the tax system. However, the tax is not indexed to inflation and is now affecting millions of taxpayers down the pay scales that it was never intended to hit.

"The alternative minimum tax isn't so alternative any more. It's become mainstream," Grassley observed.

It has been estimated that the AMT’s growing reach will affect 20.5 million taxpayers by 2006, up from 3.8 million in 2004, and President Bush’s tax reform panel is charged with finding a revenue neutral way in which the unpopular tax can be pruned or abolished.

The 2005 Economic Report of the President noted that an estimated $1 trillion in tax revenues will have to be raised elsewhere if the AMT is eliminated. The latest proposal, which repeals the system at the end of the decade, will cost around $611 billion over ten years.

The temporary fix devised by lawmakers on a yearly basis in an attempt to block the growing reach of the AMT tide itself will cost $385 billion over the next ten years if maintained.

"This is clearly wrong and an 'alternative' tax that no one in their right mind would devise," noted Baucus.

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