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March 23, 2007

It would be pretty depressing to be in, say, the Polk County Jail. You'd certainly be eager to hear somebody telling you that they could get you out of there. Even so, it's not likely that a transfer to the Warren County Jail would seem like a good solution.

Congressional taxwriters are considering a similar approach to the alternative minimum tax. The AMT is computed with fewer deductions and exemptions than the regular income tax, at a nominally lower rate. It applies when it exceeds the regular tax. As a result of accumulated legislative fudging, the AMT threatens to exceed regular tax for 23 million more taxpayers next year.

Congressman Richard Neal of Massachussets, a Democrat on the Ways and Means committee, has hit on a solution. He proposes raising the regular tax high enough to exceed AMT ($link):

House Ways and Means Select Revenue Measures Subcommittee Chair Richard E. Neal, D-Mass., told reporters March 22 that his efforts to reform the alternative minimum tax will likely involve adjusting tax rates instead of going after preferences in the tax code.

When asked whether an AMT reform proposal would be offset with repeal of tax code preferences or with an adjustment to federal tax rates, Neal replied, "I think that the latter is probably more realistic."

It's reasonably save to assume Congress won't approve this transfer between jails, and if it did, it would almost certainly be vetoed. Congress is instead likely to kick the AMT problem down the road one more year by increasing the AMT exemption temporarily, as they have done for the last several years. Real AMT reform probably requires a 1986-style major tax reform, which doesn't seem to be in the cards.


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