DON'T DO IT! Some Senators Consider Borrowing Billions Instead of Paying for AMT Reform


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It has been reported in several news outlets that Senate Finance Chairman Max Baucus (D-MT) was unable to get a majority of his committee's members to agree, at a meeting Wednesday, on how to pay for a temporary fix for the Alternative Minimum Tax (AMT). As a result, some Senators have suggested that they should waive the pay-as-you-go (PAYGO) rules that were reinstated at the start of this session and which are supposed to prevent Congress from expanding the national debt.

The Bush tax cuts increased the number of people subject to the AMT and the Republican-led Congress never permanently indexed for inflation the exemptions that keep most of us from having to pay it. As a result, 23 million taxpayers (17 percent of all taxpayers) will pay the AMT for 2007 if Congress makes no change to the law.

Not Worth Breaking the Bank

But the AMT is not exactly the greatest threat right now to the average American. Even if Congress does nothing (which is extremely unlikely) around 60 percent of the AMT would still be paid by the richest 5 percent of taxpayers. In other words, if there was ever a good reason to borrow billions of dollars and have to pay it back with interest, this is not it.

Several Measures Would Be Good Policy AND Could Pay for AMT

That is especially true because there are plenty of options that Congress can pursue to offset the cost of temporarily or permanently fixing the AMT. For starters, Congress could scale back the Bush tax cuts for the wealthiest people, who are reaping most of the benefits.

Congress could also close the loophole for "carried interest" paid to billionaires who run investment funds, and who are currently allowed to pay a lower tax rate than their secretaries. Several hundred organizations signed a letter in early September urging Congress to close this loophole. Congress could also crack down on tax avoidance associated with offshore schemes, stock options and misreporting of business income, and limit tax breaks for the deferred compensation of millionaire executives.

Early this year CTJ pointed out that one simple solution would be to close the loopholes within the AMT itself for capital gains and dividend income.

It's expected that a bill to "patch" the AMT for one year will be introduced in the House by Ways and Means Chairman Charles Rangel in the coming weeks and will likely include some combination of revenue-raising provisions to offset the cost. Rangel has, however, said members of the House may also disagree over how to do so. (Rangel also plans to introduce a larger bill to repeal the AMT entirely, and offset the costs, but that may not be acted upon until next year.)

Deficits Are Not a Progressive Solution

Congress should not waive PAYGO. The more money we borrow, the more we have to pay to make interest payments. Currently nine cents of every dollar we send to Washington goes just to interest payments -- just to pay for the privilege of borrowing. Besides that, budget deficits can endanger vulnerable families since the public services they depend on are often targets of cuts whenever conservative politicians decide it's time for "deficit-reduction" measures.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

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