Thursday, November 03, 2005

A Trade-Off Between AMT Relief and Continuing Capital Gains/Dividends Breaks

House Ways and Means Chair William Thomas (R-CA) says that he cannot fit both a two-year extension of capital gains and dividend tax cuts and a one-year suspension of the alternative minimum tax into the $70 million reconciliation bill being considered by Congress. Although the AMT has broader support, Thomas says that deciding between the two is not obvious; the market likes and expects the gain/dividend cut extension and Thomas also wants a structural rather than temporary fix for the AMT. Furthermore, if both are included, the bill goes over $70 million and under House rules, it then becomes easier to defeat. On the Senate side, Charles Grassley (R-IA) has decided to take the AMT outside of reconciliation legislation, figuring that the AMT relief has broad enough support to survive on its own.

In my opinion, the suspension and eventual elimination of the AMT is more important than the financial tax breaks, especially the capital gain cuts. At the same time, I can see Thomas's preference for a long-term solution to the AMT.


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