Senators Charles Grassley (R-IA) and Max Baucus (D-MT) have introduced legislation to completely repeal the Alternative Minimum Tax, without requiring any offset of tax revenue from another source. Other lawmakers are mulling the possibility of trading the revenue from the AMT for a change in another area of individual income tax that would result in replacing the AMT revenue.
The U.S. Senate Finance Committee, headed by Baucus and with Grassley as its top Republican member, began hearings this week focusing on the AMT issue with the resolve of at least providing a temporary patch to the looming AMT crisis, if not providing an actual cure.
The AMT was created to ensure that people earning more than $200,000 per year pay their fair share of taxes by limiting the amount of deductions and credits allowed against the income of these wealthy taxpayers. There is an AMT exemption that keeps lower income taxpayers from being subject to this tax. However, the exemption amount has not been adjusted for inflation.
In recent years, Congress has voted for a temporary patch to increase the exemption amount and allow certain credits so that middle income taxpayers are not affected by the AMT. In 2006, about four million taxpayers paid the AMT. The temporary patch for 2006 has expired, and no new patch was enacted for 2007. Without any legislation, it is predicted that about 23 million taxpayers will have to pay the AMT in 2007.
The Tax Policy Center, a joint venture between the Brookings Institution and the Urban Institute, suggests that for 2007, a family with $75,000 in income and four children will owe an extra $1,997 in federal income tax, and possibly owe penalties on that amount as well.
Toying with the deduction for state and local taxes (SALT) seems to be a favorite talking point among some lawmakers who are looking for a way of making up revenue if the AMT is changed or repealed. Suggestions have included turning the SALT deduction into a credit, or doing away with the deduction altogether. Other options being considered include a four percent surtax on couples with incomes above $200,000 per year and on single taxpayers with income above $100,000 per year. Talk of a flat tax is also resurfacing.