Democrats Seek Formula To Blunt AMT

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Source: Washington Post

Under one version of the proposal, about 1 million families would be hit with a 4.3 percent surtax on income over $500,000, which would raise enough money to permit Congress to abolish the alternative minimum tax for millions of households earning less than $250,000 a year, according to Democratic aides and others familiar with the plan.

Rep. Richard E. Neal (D-Mass.), chairman of the House subcommittee with primary responsibility for the AMT, said that option would also lower AMT bills for families making $250,000 to $500,000. And it would pay for reductions under the regular income tax for married couples, children and the working poor.

The alternative minimum tax is a parallel tax structure created in 1969 to nab 155 super-rich tax filers who had been able to wipe out their tax bills using loopholes and deductions. Under AMT rules, taxpayers must calculate their taxes twice -- once using normal deductions and tax rates and once using special AMT deductions and rates -- and pay the higher figure.

Because the AMT was not indexed for inflation, its reach has expanded annually, delivering a significant tax increase this spring to an estimated 4 million households. The AMT would have spread even more rapidly after President Bush's tax cuts reduced taxpayers' normal bills, but Congress enacted yearly "patches" to restrain its growth. The most recent patch expired in December, and unless Congress acts, the tax is projected to strike more than 23 million households next spring, many of them earning as little as $50,000 a year.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2007/06/07/AR2007060702146_pf.html