Personal Tax News

How Will Democrats Resolve the AMT Issue?

It is in both parties' best interest to extend the AMT relief, but given Democrats' preelection commitment of better fiscal discipline, it will be hard battle to find where to cut budget or raise taxes to offset the loss of AMT revenue.

Without congressional action, an estimated 23.4 million taxpayers will face the AMT in 2007. The most likely outcome, according to tax lobbyists and congressional aides, is a temporary one-year fix that will keep the number of AMT taxpayers at roughly the current level.

This task will be complicated by fiscal austerity pledges made by incoming House Speaker Nancy Pelosi (D., Calif.) and key Senate Democrats. They are promising to tighten federal budget rules so that the cost of any tax relief must be offset by corresponding spending cuts or by other tax increases.

If such budget rules were in place, the $30 billion cost of AMT relief for one year would have to be offset by spending cuts or new taxes, such as anti-tax-shelter measures.

When asked how he would pay for this, Mr. Rangel responded: "With great difficulty."

Such budget concerns will frustrate Mr. Baucus's broader goal: full repeal of the AMT, which would cost the government $1.7 trillion over the next decade, according to the Tax Policy Center, a nonpartisan Washington think tank.