Bush Proposal: Expand AMT
Tax would hit tens of millions
By Kaye A. Thomas
Posted February 5, 2008
Budget proposal provides one year of relief, then a huge wallop.
You're okay for 2008. Beginning in 2009, though, there's a good chance you'll pay alternative minimum tax, as the number of people hit with that tax will expand by tens of millions of taxpayers. And from there, the number of people paying AMT, and the amount they pay, will steadily increase. That's the future if Congress adopts the policies set forth in the final budget proposal of the Bush presidency.
What's new
These features of the budget proposal don't represent a change in the administration's policy. They appeared in the previous budget proposal, and the one before that — in fact, in all the budget proposals of the current presidency. What's new this time around is that this is the first budget since Republicans staked out a position against offsets that would replace the revenues projected from this expansion of the AMT.
Less than two months ago Senate Republicans blocked legislation that would have provided AMT relief without increasing the budget deficit. They argued forcefully that an offset for AMT relief isn't appropriate because an expansion of this tax was never intended.
That was a new approach to this problem. Every budget projection made by the Bush administration, and every one made by Congress during the years Republicans were in control, relied on the revenue that would be generated from a major expansion of the AMT. The underlying assumption was that future legislation would prevent this added tax burden while replacing the revenues some other way. As of December, Republicans were saying no to any offsets that would replace these revenues. Now we again have a budget proposal from the White House that assumes the government will collect that money.
Why it matters
The way we treat AMT collections in budget forecasts is not a minor technicality. The amount of revenue projected from the alternative minimum tax over the next ten years is in the range of a trillion dollars. That's a lot of money to add to the federal debt, especially at a time when budget deficits are approaching records and huge shortfalls in Social Security and Medicare are looming.
One way to interpret the budget proposal is as an abandonment of the position that offsets are inappropriate for AMT relief. It would be interesting to see this question posed during congressional hearings on the budget. If we don't intend to collect this tax, and we aren't prepared to accept offsets for the relief needed to prevent the added burden, it doesn't make sense to include the revenue in the budget forecast.
Update
A reader correctly points out that Democrats also included forecasted AMT revenue in budget projections. As indicated above, this approach is consistent with a position held by both parties until recently that the AMT problem could be fixed with legislation that includes offsets. Bolstering a budget with revenues that need to be replaced later is hardly ideal but is not the same as relying on revenues that are not intended to be collected and also not intended to be replaced by offsets.
Related
- Celebrity Justice, Tax Edition (previous feature)
- Tax Help Center (information on tax filing in general)
- Fairmark Fast Form Finder (finds IRS publications, too)
- Fairmark Forum (message board for questions and comments)
