Originally created 12/17/05

Fix the awful minimum tax



This was not the year for major tax changes. That much became obvious after the president's Tax Reform Commission wimped out on proposing any serious overhaul of the tax code - such as getting rid of the IRS by replacing the current system with a national sales tax.

So Congress is doing what it usually does, tinkering with the existing code - cutting some taxes here, curbing some spending there and targeting incentives and tax breaks to favored groups.

One of the top priorities for now is to renew President Bush's tax cuts beyond 2008. The cuts have been instrumental in keeping the economy humming in the face of wars, hurricanes, tsunamis and other natural and man-made disasters.

Without assurances that the cuts will be extended, or even knowing what Washington's tax policy will be in a couple of years, businesses and investors can't plan for the future. Congress must get cracking. Uncertainty threatens the nation's economic health.

Another congressional priority is to reform the alternative minimum tax, a misnomer. It should be named the "awful minimum tax."

The measure was passed in 1969 to make sure that a handful of extraordinarily wealthy Americans paid at least some federal taxes. These were people whose accountants were skilled at finding enough deductions and exceptions in the tax code for their clients not to pay any taxes. The AMT ensured they paid something.

The problem is, Congress didn't index it to inflation. And now AMT ensnares millions of hardworking taxpayers that it was never intended for. If Congress fails to cut back on AMT's ever-expanding reach this session, 15 million Americans will be added to it next year.

Taxpayers will be caught if they have a lot of long-term capital gains, or take certain deductions, exemptions or credits that cannot be claimed under AMT. Families with a lot of dependents also can be affected because AMT doesn't allow personal exemptions.

The House and Senate passed separate bills applying a temporary fix for next year that would reduce taxes by $30 billion for those affected. But even those bills have gotten caught up in the political feuds over the GOP's effort to extend tax cuts on savings and investments beyond 2008.

There also is a bloc of congressional members who are fighting against curbing AMT's reach unless the $30 billion or so in lost revenues is offset by spending cuts.

Why should it be necessary to cut from the budget spending revenues that shouldn't be collected in the first place?

Putting the AMT back in its box shouldn't be contingent on spending cuts or the fate of other bills. It should be done because the tax is unfair and wrongheaded. It ought to be abolished altogether - giving relief to middle- and upper-middle income families, some with multiple dependents and two working parents earning $75,000 to $100,00 a year.