Dem proposal would end alternative minimum tax
House Democrats on Thursday unveiled a sweeping tax overhaul that would eliminate the alternative minimum tax (AMT) but add a surcharge for higher-income Americans.
Introduced by Rep. Charles Rangel, D-N.Y., who heads the powerful House Ways and Means Committee, the bill would extend the current AMT rules for another year and then repeal the tax entirely after that. Instead, individuals earning more than $150,000 and couples earning more than $200,000 would pay a 4 percent surtax, while singles earning more than $250,000 and couples making more than $500,000 would see a 4.6 percent surcharge.
“This legislation will provide tax relief to more than 90 million working families,” Rangel said. “For too long, hardworking families have struggled to keep pace with the rising cost of living in America. This legislation would put money back in their pockets to combat the growing economic insecurity gripping our nation.”
Even those paying the surcharge would see a reduction in their overall tax bill, a Rangel spokesman said.
Congressional Republicans wasted no time attacking the proposal.
“Unfortunately, the chairman’s proposal looks like warmed-over AMT, especially if it’s not indexed for inflation,” said Sen. Charles Grassley, R-Iowa, ranking member of the Committee on Finance. “The replacement tax will still hit millions of families. We wouldn’t accomplish anything by scrapping the AMT and replacing it with something almost as bad.”
Some tax experts also questioned how taxpayers in high-income states would fare under the proposed legislation. While residents of large cities are particularly at risk to fall subject to the AMT because of high property and, in some cases, state income taxes, they also have higher incomes, so they could be hit by the surcharge.
“Some people will see relief, but it will be a narrow band,” said Patrick Fleenor, chief economist with the Tax Foundation, a Washington, D.C., research group.
Congress is under the gun to address the tax since a temporary patch that limits the AMT’s reach expires this year. Rangel’s bill comes a day after Treasury Secretary Henry Paulson warned that the IRS could have trouble processing returns and paying refunds in April if Congress doesn’t take up the issue soon.
Originally meant to ensure that the wealthy paid their fair share of tax, the AMT increasingly has ensnared middle-class families because the exemption amount is not tied to inflation. In 2001, Congress raised the exemption amount on a temporary basis. It let the patch expire in 2005 before extending it in February 2006.
While Rangel said he does not believe Thursday’s legislation will come to the floor this year, he expects Congress to carry the patch into 2008.