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GOP tax heresy regarding the AMT?

Charles Grassley might be getting some calls from his Republican colleagues about his latest position on the alternative minimum tax.

Tax publisher BNA reports that Grassley (R-Iowa), the ranking minority member on the Senate Finance Committee, would be willing to accept tax increases on the wealthiest Americans as a way to help finance repeal of the AMT.

Grassley has previously noted that he prefers to repeal the costly parallel tax system without requiring Congress to worry about offsets. But since legislative pay-go rules prohibit that, Grassley and his colleagues will have to come up with the money that the government will lose if AMT collections are stopped. As blogged previously, that would be a "staggering" amount.

Not too long ago, Grassley was thought to be a supporter of taxing private equity carried interest as a way to offset other tax fixes, such as AMT. However, he apparently has changed his mind, as noted in this Financial Week story.

Other efforts: In January, Grassley and Max Baucus (D-Mont.), the Finance Committee's chairman, introduced a bill to eliminate the AMT. calling for the death of the stealth tax that lawmakers on both sides of the aisle have criticized.

And Ways and Means Committee Chairman Charles Rangel (D-N.Y.), is calling for the "mother of all tax reforms," which includes doing away with the AMT. Details in this earlier blog post.

The smart money, however, is on a short-term fix that will prevent around 23 million taxpayers from facing the AMT. The biggest problem is that when the tax was created in 1969 to nab the rich of that day (155 filers making $200,000 and who were avoiding payment of any federal taxes), it wasn't indexed for inflation.

So Congress periodically adjusts the exemption amount upward. Currently, the amounts are $42,500 for single filers and $62,550 for joint filers. If no legislative action is taken, for tax year 2007 they will drop to $35,750 for single filers and $45,000 for married filers.

More info: Other Don't Mess With Taxes bloggings about the AMT can be found here (the Advocate and the AMT) and here (AMT across the USA).

Joe Kristan, who writes the Tax Update Blog for Roth CPA, has more here, as does TaxProf here and the Wall Street Journal's Washington Wire here.

And the OMB Watch blog has info here on planned AMT hearings in the Senate.


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Steve Austin

That's perfect then. Leaving those thresholds intact, the USD will eventually inflate to the point where more people are paying the flat rate and fewer people are paying a progressive rate.

After a decade or two (running surpluses to pay down some of the debt) under that scenario, abolish the main system leaving the simpler, flat "Alternative" Minimum Tax in place. If the budget surpluses are obscene, ratchet down the flat rate to reality. (Though I have to believe that the majority of elected officials will have no problem finding places to spend a surplus.)

This would be known as backing into tax reform, perhaps a politically expedient way to do so.


The AMT is roughly a flat 28% on income exceeding $175k by removing many common tax deductions. However, it can affect incomes as low as $75k. Given the rapid increase in wages and cost-of-living since the AMT went into effect, this tax could hit many people very hard when they're not expecting it.

Steve Austin

I've read this sentiment elsewhere on occasion, but doesn't AMT == flat tax? The system to bag is the main one, leaving the simple, efficient "stealth" AMT behind to tax everyone's incomes at the same rate. That outta close the budget deficit in no time and start melting the debt.

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