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Grassley Proposes AMT 'Safeharbor'

by Mike Godfrey,, Washington

29 June 2007

Sen. Chuck Grassley, ranking Republican on the Senate Finance Committee, is proposing a 'safeharbor' mechanism to prevent millions of new US taxpayers having to calculate estimated tax under the Alternative Minimum Tax system.

In a statement on the Senate floor, Grassley, a long-time advocate of total AMT repeal, called the system that was originally intended to catch 155 of America's wealthiest taxpayers "a complete policy failure" that threatens to consume 23 million taxpayers this year, while still allowing the wealthiest taxpayers to reduce their tax liabilities to zero through various deductions and exemptions.

"The tax has not decreased the number of people who are able to legally eliminate all of their income tax liability. The only thing the Alternative Minimum Tax does successfully is pull in a vast amount of money for the federal government. This is especially ironic in that the Alternative Minimum Tax was conceived primarily to promote tax fairness, and not to raise revenue," Grassley remarked.

He went on to add that: "I am going to be introducing legislation that will provide taxpayers a safeharbor from being punished for the fact that Congress has failed to deal with the AMT."

Under Grassley's proposal, in calculating their estimated tax, a taxpayer would be permitted to disregard the alternative minimum tax if the individual was not liable for the alternative minimum tax for the preceding tax year. "So if you didn’t have to pay AMT last year we aren’t going to penalize you if you don’t file estimated taxes for AMT this year. Just because Congress can’t do its job, doesn’t mean the taxpayer should be punished," he remarked.

House Democrats are reportedly going to propose a 'surtax' on wealthy individuals to pay for the removal of AMT on the increasing number of middle income taxpayers now caught in the system's trap. However, Grassley is firmly of the view that Congress should not be trying to replace revenues that were never intended to be collected.

Grassley argues that the best solution to the problem is his “Individual Alternative Minimum Tax Repeal Act of 2007,” introduced with Senate Finance Committee Chairman Max Baucus, and Senators Crapo, Kyl and Schumer.

"That solution is to permanently repeal the tax without offsetting revenues that would not be collected as a result of repeal. Revenues projected to be collected by the Alternative Minimum Tax are revenues the tax was never meant to collect, and that would only be collected through error. To make offsetting a condition for repeal is to commit to reshape a problem without actually solving it," Grassley told the Senate.

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