Thursday, June 14, 2007

AMT Reform: Comments by Senator Grassley

Today’s BNA Daily Tax Report includes a floor speech by Senator Grassley discussing AMT reform. Senator Grassley is critical of two proposals floated about which repeal the AMT in favor of a “surtax” on upper income earners. One approach ensures the surtax hits those with incomes above $250K; another is more specific, focusing on single earners with incomes over $100,000, and couples with incomes over $200,000.

These “surtaxes” targeting the “rich” present a tempting political solution. To the extent that some people earning as low as $75,000 may be hit by the AMT, these folks will welcome relief from the AMT and its complexity. From a purely political perspective, these proposals make a calculated payoff in helping more people than will be "hurt" by the surtax. However, from a principled perspective, we must answer the question: what makes it appropriate for the majority to decide to extract proportionally more wealth from a cohort of citizens? We must also ask the question of what impact will result from raising the tax costs on the marginal revenues of the most productive citizens.

Senator Grassley also had an interesting take on the issue of replacing “lost” revenues from repeal. Though some might criticize this as an exercise in semantics, I think he is making an important political point about the AMT system and its role in burgeoning federal revenues. We must stop the growth somehow. Not every dumb tax idea that is conceived in Washington should have immortal status. We should think more creatively about taxes than simply adopting and adhering to the status quo. Excerpts from the Senator's comments appear below.

“Aside from the fact that Congress doesn't seem to be under any pressure to actually take action, all of the proposals I have discussed here share the same major flaw in that they seek to offset any revenues not collected through reform or repeal of the AMT. Notice I said "not collected" and not "lost."
This distinction is important for the simple reason that the revenues that we do not collect as a result of AMT relief are not lost. The AMT collects revenues it was never supposed to collect in the first place. Originally conceived as a mechanism to ensure that high income taxpayers were not able to completely eliminate their tax liability, the AMT has failed. In 2004 IRS Commissioner Everson told the Finance Committee that the same percentage of taxpayers continues to pay no federal income tax.
The AMT was originally created with just 155 taxpayers in mind, and of the two plans I discussed earlier, the one that would impact the lower number of filers would still hit about one million families. One million from 155.
Finally, if we offset revenues not collected as the result of AMT repeal or reform, total federal revenues are projected to push through the 30-year historical average and then keep going. This chart, which is reproduced from the nonpartisan Congressional Budget Office's "The Long-Term Budget Outlook" issued in December of 2005, illustrates the ballooning of federal revenues. The AMT is a completely failed policy that is projected to bring in future revenues that it was never designed to collect.”

Remember, your second payment of estimated taxes is due June 15. Happy Flag Day.

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