Tax Update Blog: Permalink
« Previous · Tax Update Blog Home · Next »
HOUSE PASSES DOOMED AMT PATCH BILL
December 13, 2007
The House of Representatives yesterday passed an "AMT patch" bill to keep 20 million or so new taxpayers from being hit with the alternative minimum tax. The bill is different from the Senate bill in that it has "pay-fors," or tax increases to generate the same revenue as the pre-patch AMT would. There's no telling how long it will take to reconcile the bills, so the beginning of the IRS 2007 1040 processing season recedes a little further into February 2008.
PAY-GO
The "pay-fors" are the sticking point. Congressional rules have for some years now required tax changes that reduce revenue to be "paid for" by additional revenues from somewhere else. These "Pay-as-you-go," or "Pay-go" rules have generated terrible tax policy and budgeteering chicanery great and small:
GREAT: The entire 2001 Bush tax cut legislation was warped into awful tax policy by the Pay-go" requirements. With enough votes to pass the bills, but without 60 Senate votes to waive the Pay-go rules, the Administration "paid" for its tax rate cuts by leaving the AMT alone. As taxpayers pay the greater of regular tax or AMT, a cut in regular taxes alone mathematically ensures that more people fall into AMT. Ever since then Congress has kicked the day of reckoning down the road one or two years at a time by increasing the AMT exemption amount.
The other great casualty of Pay-go in 2001 was the estate tax repeal. Lacking pay-fors, the 2001 bill increased the lifetime exemption over a period of years until the estate tax was repealed for one year, 2010. The estate tax then roars back in it's pre-2001 form, with top rates over 50%, in 2011. Whether or not you think the estate tax repeal is wise, it's hard to argue that what we have now is sound tax policy.
SMALL: The house-passed bill is full of the little budgeteering chicanery, and bad tax policy, generated by Pay-go. My favorite (via RIA):
Increase for large corporations the required installment of estimated tax which is otherwise due in July, August, or September of 2012 by 52.5 percentage points (with corresponding adjustments to the amount of the next required installment).
This is just a cheesy way to stuff tax revenue from the 2013 fiscal year, which begins in October 2013, into the 2012 fiscal year so they can say that the AMT patch is "paid for" under their through-the-looking-glass scoring rules. That's like "paying" a mortgage payment by taking a cash advance on your credit card.
Who is responsible for the mess? Bob Williams at Tax Vox argues persuasively that there is plenty of blame to go around. The TaxGrrrl just wants the mess cleaned up. And, of course, the TaxProf has a link-rich roundup.
Related: A LATE START TO TAX SEASON?
• AMT Bookmark: del.icio.us • Digg • reddit
Tax Updates
Subscribe to Tax Updates
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not neccesarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Search Tax Updates
Friends and Neighbors
Economics Nerds
Hard-Core Tax Nerds
Gigablogs
Insurance Folk
Goners
Legislation
Tax Update Data Feeds
Comments
There certainly is blame to pass around on this! The AMT tax is universally denounced (for good reason) by both parties. It is impossible to explain, has a bizarre history and can't be simply repealed because it is a "cash cow" that, without changes, would bring in an incredible amount of tax money. The current 11th hour dispute is reminiscent of the "federal shutdown" days in the 1990's, when congress stopped talking and instead went home for the holidays. Now, as we did then, we need more rational members of both parties to take charge.
Posted by: Larry | December 13, 2007 5:31 PM