Tax experts argue AMT reform

Limiting deductions for state and local taxes could pay for reforming the alternative minimum tax, said experts at a Senate hearing today. At the Senate Finance Committee hearing on the AMT, committee members as well as speakers agreed that measures should be taken to mitigate the impact of the tax, which was enacted in 1969 with the aim of preventing taxpayers who earned more than $200,000 from escaping income taxes due to tax breaks. “Turn the state and local tax deduction into a credit,” counseled Leonard Burman, director of the Tax Policy Center of the Urban Institute, a liberal think tank in Washington, in response to a question from Sen. Ken Salazar, D-Col., about how to help pay the estimated $800 billion, 10-year cost of repealing the tax. Mr. Burman also suggested a 4% surtax on couples with incomes above $200,000 a year, or single people with incomes over $100,000 annually, to pay for repeal. If Congress does not act to limit the impact of the AMT, about 23 million taxpayers would be subject to the tax for 2007. It is likely that Congress will extend AMT relief to middle-income taxpayers on a temporary basis, committee chairman Max Baucus, D-Mont., said. “I think we all assume we’re going to find a “patch” here,” he said, referring to temporary relief. Congress should not worry about finding revenue offsets to pay for abolishing the AMT, said Sen. Charles Grassley, R-Iowa, ranking minority member of the committee. The AMT was not enacted with the goal of raising revenue, he said, and he has sponsored a bill to eliminate the tax altogether. “The alternative minimum tax has been a complete policy failure,” Mr. Grassley said. While little support was seen on the committee for limiting home mortgage interest deductions, several panelists encouraged committee members to explore a flat tax system that eliminates the AMT.