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TOP SENATE TAX STAFFERS BLAST AMT

August 10, 2005

The top two Republican staffers on the Senate Finance Committee attack the alternative minimum tax while defending Senator Grassley's AMT record in a Tax Notes article made available by the TaxProf today.

DEFENDING GRASSLEY

The staffers are responding to criticism that the AMT has been used cynically to enable Congress to enact tax cuts that are really illusory because they don't work for AMT. Their response to the criticism, largely consisting of saying Senate Finance Committee Chairman Grassley has long opposed the AMT, is unconvincing. They cite a 1999 bill to repeal the AMT vetoed by President Clinton; that bill "was never serious legislation," as tax prof Sheldon Pollack recounts, and should not be considered a serious attack on AMT.

Tax revenue projections are critical parts of all tax legislation. Whether used cynically or not, they are deeply woven into the legislative process. The AMT greatly reduces the cost of many different tax breaks; the just-enacted credits for residential energy savings are a classic example. The AMT probably made the president Bush's 2001 tax cuts possible by reducing their size.

Senator Grassley has been on the Finance Committee since the current version of the AMT came to life in 1986. While he can't be held solely responsible for the state of the tax law, he has been the chief Senate taxwriter for most of the last three presidential terms. No legislator has had more ability to affect the tax law over that time then Senator Grassley, so attempts to deflect responsibility from him can't entirely succeed.

THE AMT PROBLEM

The staffers are on more solid ground when they describe the practical effect of AMT:

But there are other very compelling reasons to repeal
the AMT. Not only has the AMT failed in its original
objective, but the AMT has lost its policy purpose.
Currently, the AMT derives its revenue base from large
families and those who pay high state income taxes.
According to data provided by Everson to Sens. Grassley
and Baucus in 2004, the top 15 states affected by the AMT (in order of impact) are: New York, New Jersey, California, Connecticut, Maryland, Massachusetts, Rhode Island, Oregon, Ohio, Maine, Wisconsin, Illinois, Minnesota, New Hampshire, and Vermont. From a horizontal equity perspective, Kevin Hassett made the following remark in his May testimony: "While it was originally motivated as a tax to ensure social justice, it likely does the opposite. It taxes individuals across states in a hodgepodge way, hitting similar individuals quite differently."

This is exactly right. A two-earner professional couple with children is pretty much doomed to AMT in Iowa, for example, but will be AMT-free in Nevada.

They defend their stopgap attempts to prevent AMT from affecting even more taxpayers -- Congress has increased the individual AMT exemption several times -- and they correctly note that failure to index AMT exemptions have made the AMT problem worse.

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