AMT alternatives

Another year, another tizzy in Washington over the alternative minimum tax, that odd wrinkle in the tax code that forces millions of middle-income taxpayers to compute their taxes twice and, in an ever-growing number of cases, face huge increases on their bills from the IRS.

Congress failed to index the AMT to inflation in 1969, when it introduced the tax to prevent 155 ultra-rich families from avoiding paying taxes altogether. This year, if Congress doesn’t abolish the AMT outright or write a new temporary “patch” to make up for this failure, more than 20 million middle- and upper-middle-class taxpayers will owe an additional $50 billion to the government.

Writing AMT patches has become a ritual in Washington, with good reason. Inflicting steep tax hikes on middle-class taxpayers would result in a political “train wreck,” as House Ways and Means Chairman Charles B. Rangel (D-N.Y.) said. But, sadly, it’s looking like such a train wreck might be the only turn of events that could force Congress to truly, finally fix the AMT.

Rangel has introduced two bills that address the predicament. The first, a comprehensive (and largely symbolic) tax reform plan, would do away with the AMT altogether. The bill has a lot of problems, but it does one very important thing: It calls on Washington to consider, seriously, what the country would do to make up for the estimated $1 trillion over 10 years that wouldn’t come in if the AMT were repealed.

Rangel’s second bill is another patch, and may reach the House floor for debate today. Count on the discussions to disappoint. Republicans have already begun to squawk that the country should simply get rid of the AMT and stop worrying about paying for it, which this bill calls for too. Senate Republicans promise a filibuster. Senate Democrats are also waffling on their commitment to replacing the money. But in the real world, with wars to fight and a country to govern, neglecting to replace $1 trillion in AMT revenue is not an option.

We expect that eventually Congress will pass, and the president will sign, some form of temporary AMT relief. We almost wish that weren’t the case. This page has argued that the best AMT fix would be part of an overhaul that would simplify the tax code and provide clarity for taxpayers across the board. Such an overhaul could still be progressive -- preserving lower rates for lower earners -- and could still provide realistically for government operations. Rangel’s bills add complexity. But at least he seems to understand that it might take letting the AMT slam more than 20 million Americans to make Congress embark on real reform.