The New Congress Will Tackle The Old Taxes
Friday, December 22, 2006PAUL KANGAS: When the 110th Congress convenes January 4, one of the key topics of discussion will be taxes, specifically the alternative minimum tax. Many Democrats and some Republicans, want to reform or repeal the AMT, but as Washington bureau chief Darren Gersh explains, doing that will be difficult, hampered by the twists and turns of a very complicated tax.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: AMT twist number one: when it comes to the alternative minimum tax, Democrats are complaining loudest because the AMT hits voters in high-tax blue states hardest. But tax analyst Leonard Burman figures scrapping the AMT would mostly benefit those making between $200,000 and $500,000 a year -- in other words, the top 5 percent or so of taxpayers.
LEONARD BURMAN, DIRECTOR, TAX POLICY CENTER: Well, I guess it shows that Democrats don't hate rich people.
GERSH: The AMT was also created to make sure people making a million dollars or more pay income taxes. But because of the way the AMT is structured, people making less than that might pay a higher tax rate.
BURMAN: It's not a flat tax; it's a camel-shaped tax and it goes 26 percent, 32.5, 35 percent and then back down to 28 percent. And those people in that hump part in the middle are subject to the 35 percent rate. They're all on the AMT.
GERSH: A second AMT twist, says analyst Alan Viard, is that it takes away about a third of the regular income tax cuts the president has signed into law.
ALAN VIARD, ECONOMIST, AMERICAN ENTERPRISE INSTITUTE: Unless it eventually is corrected, it does take away part of his legacy, yes.
GERSH: Given all this, you would think AMT repeal would be a slam dunk for Democrats and Republicans. The political twist is this: in theory, 30 million middle class taxpayers could end up paying the AMT in a few years. But right now, only four million taxpayers pay it.
VIARD: The AMT doesn't look like a relevant issue yet. It's somebody else's tax. And so, if I were to come to them as a member of Congress or as the president and say I got rid of the AMT. You're not going to have to pay it, people would say, well, gosh, I never have paid it.
GERSH: And repealing it would require raising other taxes, which is what activist Robert McIntyre wants to do. He suggests Democrats raise the top rate on capital gains and dividends under the AMT.
ROBERT MCINTYRE, DIRECTOR, CITIZENS FOR TAX JUSTICE: And the upshot would be that the AMT would go from being paid 20 percent of it by the best off 1 percent, to two-thirds of it being paid by the top 1 percent, which is what it was supposed to be all along.
GERSH: The final AMT twist is the cost. Repealing it would cut Uncle Sam's tax take over the next decade by more than $1 trillion. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
