Wednesday, November 15, 2006

Baucus and Dems Focus on Long-Term AMT Fix

Max Baucus (D-MT), soon-to-be chairman of the Senate Finance Committee has received support from Charles Rangel (D-NY), soon-to-be House Ways and Means chair and House Democratic Whip Steny Hoyer (MD) to emphasize a long-term solution to the alternative minimum tax creeping toward middle income taxpayers. Baucus, along with departing Finance chairman Charles Grassley (R-IA), sponsored a bill to repeal the AMT last year. The AMT has threatened to increase taxes for middle-income taxpayers for a number of years, with one-year fixes through increased exemptions being the approach used in practice by Grassley and the Republicans.

A sizable adjustment in the AMT is needed--either in the form of a sizable increase in the exemption, reduction in AMT tax rate or outright repeal. Given the reluctance of Democrats to repeal the estate tax, my guess is a sizable increase in exemption (perhaps $40,000 for MFS; $60,000 for single; $80,000 for MFJ), either combined with eliminating the 28% rate OR establishing the lower third AMT rate (perhaps 20%) for the first $100,000 subject to the AMT (the 26% rate might be reduced to 24% and cover the next $150,000 or so subject to AMT).


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