One Utah

Canidates this election cycle appear to be making little mention about an “imminent legislative challenge: how to stop a tax increase that will hit more than 20 million households next year, some with incomes as low as $50,000″. This tax increase will pay for Bush’s tax cuts to the wealthy.

Excerpts from Bloomberg.com:

Unless Congress acts, the alternative minimum tax will gradually impose $1.35 trillion in additional taxes over the next 10 years. Yet only six candidates in the 28 most-competitive House and Senate races across the country even mention it on their campaign Web sites.

Most candidates are avoiding the subject because the cost of stopping the tax increase would obstruct key elements of their agendas, such as the expansion of prescription-drug benefits for the elderly planned by Democrats, or Republicans’ plan to make permanent President George W. Bush’s 2001 and 2003 tax cuts.

“It’s a ticking time bomb,” said former Senator John Breaux, a Louisiana Democrat who was vice chairman last year of a presidential panel that recommended abolishing the minimum tax. “No one wants to recognize it. No one wants to pay for it.”

In many of this year’s most closely contested races, discussion on the AMT is absent.
The minimum tax was created as a parallel tax system in 1969 to prevent 155 wealthy people from reducing their liability through excessive exemptions, credits, and other deductions. Because it wasn’t indexed for inflation, the tax increasingly affects people with modest incomes by denying deductions such as personal exemptions, property taxes, and medical expenses.The tax affected 3.8 million households this year; that number will grow almost six-fold in 2007. By 2016, about 45 million American households face higher bills if changes aren’t made, according to an estimate this month by the nonpartisan staff of the congressional Joint Committee on Taxation.

Still, the issue has played little role in this year’s campaigns. Only a few Republicans, such as Senate candidate Tom Kean Jr. in New Jersey and Representatives Tom Reynolds of New York and Chris Shays and Rob Simmons of Connecticut, discuss the minimum tax on their campaign Web sites.

Among Democrats, House Minority Leader Nancy Pelosi of California said this month that fixing the AMT was a priority for her party. Yet only a few Democratic candidates, including Representatives Charles Rangel of New York, Tammy Duckworth in Illinois, John Barrow of Georgia and Melissa Bean of Illinois, emphasize the issue.

“I don’t know why it hasn’t caught fire,” said Phil Singer, a spokesman for the Democratic Senatorial Campaign Committee.

Those candidates who do mention the minimum tax offer few specifics for fixing it. Reynolds, for example, says he will “fight for middle-class relief” from the tax. Duckworth calls for “permanent reform.” Neither says how they would pay for any changes to the tax.

Congress has limited the impact of the minimum tax over the past five years through a series of temporary measures intended to keep the number of affected households under 4 million. Lawmakers passed such temporary “patches” in 2001, 2004 and this year, at a cost to the government of $66.5 billion in tax revenue over the five-year period.

“They’re just pushing the day of reckoning down the road, but the day of reckoning is going to be here one day,” said Breaux, 62, now a senior counsel for Patton Boggs LLP, Washington’s biggest lobbying firm by revenue.

Congress isn’t slated to consider the AMT during a lame-duck session next month after the elections.

Breaux’s panel, led by former Republican Senator Connie Mack of Florida, recommended abolishing the AMT last year as part of an overhaul of the tax code. To pay for it, the panel recommended repealing or reducing popular tax breaks such as a deduction for mortgage interest and for state and local taxes.

Those recommendations are being evaluated by the Treasury Department. Ed Lazear, chairman of the White House Council of Economic advisers, said in an interview last week that Bush may take up tax overhaul next year.

Rangel, who is in line to become chairman of the tax-writing Ways and Means Committee if Democrats win control of the House, has said fixing the minimum tax is Congress’s “responsibility.” Some of Bush’s tax cuts, especially those for investors and multimillion dollar estates, would have to be pared or abolished to pay for a permanent fix without worsening the budget deficit, he said.

“Clearly we’re going to have to raise the money within the system,” Rangel, 76, said in an interview last month.

Bush and other Republicans have responded that Rangel and other Democrats are planning tax increases if they take power.

`Taxes Are Going Up’

“If the tax cuts we pass are not made permanent and they are left to expire, your taxes are going up,” Bush said at an Oct. 26 fund-raiser for Republican House candidate Jeff Lamberti in Iowa.

John Buckley, chief tax counsel for the Democratic staff of the House Ways and Means Committee, said the minimum tax reclaims many of the benefits provided by Bush’s tax cuts. That is because the tax cuts lowered rates under the normal system, without altering the alternative minimum tax rates. By law, taxpayers must calculate their liability under both systems and pay whichever is higher.

As a result, twice as many households will pay the minimum tax if Bush’s tax cuts are made permanent than if the cuts are allowed to expire.

For now, Congress may continue to postpone confronting a permanent fix for the AMT, though the yearly patches will become an escalating burden on the federal budget starting next year. Limiting the reach of the AMT in 2007 would cost $49.2 billion, a 59 percent increase from this year, according to the staff of the Joint Committee on Taxation. Extending the patch in 2008 would cost $60.4 billion.

“It becomes a catastrophe next year,” Buckley said.

To contact the reporter of this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

This entry was posted Thursday, November 2nd, 2006 at 5:44 am and is filed under Economy, National Politics, Republicans. You can leave a response, or trackback from your own site.