Goodbye, Alternative Minimum Tax. Almost.

The country’s onerous bailout bill heads to the Senate today, with added tax provisions. Here’s the tax portion’s evolution, according to the AP:

Last week: Senate passes first tax plan with a 93-2 vote. Provisions:
-Alternative minimum tax relief
-$8 billion tax relief for victims of natural disasters in Texas, Louisiana, and the Midwest.
-$78 billion towards renewable energy incentives and tax-break extensions.

After Republican feedback, the following was altered in the bill:
-No AMT relief
-No disaster provisions
-Revenue offsets for a portion of tax-break extensions and renewable energy incentives

The House saw the bill, and said the tax-break extension and renewable energy portions should be completely offset by the government.

The AP says that if the alternative minimum tax disappears, more than 20 million Americans will get tax relief.

The alternative minimum tax, first implemented in 1969, means extra paperwork, increased complications, double taxation if you live abroad, no state, local or foreign tax deductions, and generally a huge headache if you make between $150,000 and $415,000/year (I would define this as upper middle class). If it sticks around in its current form, its lack of indexation will force it into lower and lower income brackets. Lots of people won’t miss it.

Except for the government. Wikipedia quotes the Washington Post on this point:

By 2008, it would cost the Treasury considerably less to repeal the ordinary income tax system than the alternative minimum tax, according to the Tax Policy Center, jointly run by the Brookings Institution and Urban Institute.

The challenge is to tax higher earners proportionally to their income, without robbing them blind.
If you’ve ever faced the dreaded AMT, you know that it makes tax time more confusing and troublesome than it needs to be, with potentially infuriating consequences if you don’t loophole it correctly.

There has to be another way.

  • Here’s a question. What extent do you believe marketing played in the part of the bill not passing. Constituents were very unpleased with this “bailout” package and therefore hounded their reps relentlessly. In fear of upsetting their voters, numerous voted Nay. What id the government had positioned this bill as a “loan”, instead of the more negative term of “bailout”. Do you think that something as simple as the naming of the bill could have such a great effect?

  • Drea

    I don’t think so. I think that distrust in the Bush administration, villification of Paulson, and pre-existing frustration with the economy played a stronger role. People spoke up because, through blogs and the media, they learned that several facets of the bill simply weren’t designed for them. “Loan” dialectic may sounds less impactful, but it doesn’t change the contents of the bill.