Upcoming AMT Reform?

Reported today:

The not-super rich may get AMT break

NEW YORK (CNNMoney.com) -- House Democrats on the tax writing committee may have come to a consensus on how to reform the Alternative Minimum Tax (AMT), according to a report Wednesday in Tax Notes, a trade publication published by Tax Analysts. The proposal would give the biggest tax break to middle- and upper-middle income households.

The AMT is often called the wealth tax because when it was created in 1969, it was intended to ensure the highest income filers paid some income tax. But the regular tax code and the AMT have changed greatly since then and not in tandem. Consequently, tens of millions of taxpayers are at risk of having to pay the AMT, which results in a higher tax bill.

A Democratic member of the House Ways and Means committee told Tax Analysts that the committee's tax writers gave the nod to a proposal from Rep. Richard E. Neal (D-Mass.), according to Tax Notes. Neal chairs the Subcommittee for Select Revenue Measures, and has told Tax Analysts that he hopes to have a bill on the House floor within two months.

Calls to Congressman Neal's office for confirmation were not immediately returned.

Neal's proposal, according to Tax Analysts, would do four things:

• Exempt taxpayers from having to pay AMT if their incomes are below $250,000.
  
• Increase the AMT liability of those earning more than $500,000.
  
• Lower the AMT liability of those earning between $250,000 and $500,000.
  
• Provide tax cuts targeting lower-income taxpayers not subject to AMT. Those cuts might include an expansion of the child tax credit.

In previous analyses of various AMT reform options, the Tax Policy Center estimated that excluding joint filers with incomes under $250,000 would mean a tax cut for 66 percent of taxpayers in the top 10 percent of the income distribution.

For this to work in a revenue-neutral way -- meaning there would be no loss to government coffers because of the change -- the Center also estimated that lawmakers would have to raise the AMT rate to 35 percent from the current 26 percent and 28 percent rates. That would result in an average tax increase of almost 8 percent - or $30,303 - for the top 1 percent of taxpayers.

This is not a bad idea... but I really do think that the time is ripe for a complete overhaul of the tax code. I'd love to see some of the presidential candidates talk about some ideas for fundamental tax reform.