Senators push to repeal alternative tax

The bipartisan group said middle-income workers were being hurt unfairly. Others questioned how the government would fill the financial void.

Author: Nicholas Johnston

Published: May 24, 2005

A bipartisan group of U.S. senators is targeting the alternative minimum tax for repeal, saying it unfairly is affecting middle-income workers and may be harming the economy.

"How on Earth can we afford to take that much money out of the private sector and expect to continue to have our strong economic recovery?" Sen. Jon Kyl (R., Ariz.) said in an interview. "The AMT is going to be hitting all kinds of folks it was never intended to hit."

Kyl is one of the sponsors of a bill to repeal the AMT, which was created in 1969 to force wealthy people to pay more income tax by denying them some exemptions, credits and other deductions.

At a hearing yesterday of the Finance Committee panel on taxation, senators noted that because the alternative minimum tax has not been indexed for inflation, it is now affecting increasing numbers of middle-income taxpayers. The minimum tax affects 3.5 million taxpayers today and by 2010 will force almost 32 million Americans, many with incomes of less than $100,000, to pay higher taxes, senators said.

"If I was given the opportunity to make just one change to the internal revenue code, I would use it to eliminate the individual AMT," Nina Olson, national taxpayer advocate of the Internal Revenue Service, said at the hearing.

John Breaux, the vice chairman of a panel named by President Bush to recommend ways to simplify the U.S. tax code, said in an interview that while there is a "growing consensus" in favor of a repeal, "the question is, where do you get the money to pay for it?"

Repealing the tax would cost the government about $600 billion in lost revenue over 10 years, according to the nonpartisan Tax Policy Center in Washington. The repeal may face opposition if it adds to the federal deficit, which was a record $412 billion last year. The last Bush administration forecast said it would rise to $427 billion in the current fiscal year.

"We just cannot afford to keep having politicians go around and promise people new programs with no explanation of how they're going to pay for it or offer them tax reductions with no idea of how they're going to pay for it," said Barry Bosworth, an economist with the Brookings Institution in Washington.

Andrew Parmentier, a policy analyst at Friedman Billings Ramsey & Co. in Arlington, Va., said that while the AMT repeal has bipartisan support, the size of the deficit remains an obstacle.

"The problem here is one of timing," he said. "Where was the AMT relief two years ago when you didn't have this type of structural budget deficit?"

Breaux said raising tax rates was not an option to make up for the revenue lost by the alternative minimum tax repeal, and eliminating local and state tax deductions would not be popular.

"For every good choice of doing away with a bad tax like the AMT, there's going to be some very painful recommendations in order to pay for it," Breaux said.

The senators who have joined Kyl in sponsoring repeal legislation are Senate Finance Committee Chairman Charles Grassley (R., Iowa); Max Baucus of Montana, the Finance Committee's senior Democrat; and Ron Wyden (D., Ore).

"Not only is the AMT unfair and poorly targeted, it is an awful mess to figure out," Baucus said.

Kyl said the tax could be repealed without having to find new sources of tax income.

"The government never anticipated having that money in the first place," he said.