Dec. 28, 2006
 
COMMENTARY: Repealing the Spite Tax
 
By Dale McFeatters
Scripps Howard News Service
 
Spite is a bad basis for legislation, which is why we find ourselves stuck with the Alternative Minimum Tax.
 
It was passed in 1969 after Treasury disclosed, to widespread outrage, that 21 millionaires had paid no income tax because of artful -- but legal -- use of deductions, credits and shelters.
 
From those 21 taxpayers, the AMT has grown with inflation to capture more and more taxpayers, 3.8 million households in 2006, soaring to 23 million next year -- about 25 percent of tax filers -- and more than 30 million in 2010.
 
By 2010, almost everyone making $200,000 to $500,000 will be paying the AMT but so, too, will about half the filers in the $75,000 to $100,000 range.
 
The AMT has only two rates, 26 percent and 28 percent, but it does not allow deductions or credits for dependents, state and local taxes and medical expenses among others. Filers must calculate both the regular tax and the AMT and pay whichever is higher, and the AMT averages $6,000 more.
 
The AMT hits hardest in well-to-do, high-tax states -- New Jersey, Connecticut, New York and California are the top four -- which, as it happens, tend to be Democratic, and the new Congress is in Democratic hands.
 
Congress has patched the AMT a year at a time, but the Democrats are vowing to fix it permanently. Sen. Max Baucus, the new chairman of the Senate Finance Committee, has vowed repeal, and Rep. Charles Rangel, the new chairman of House Ways and Means, has likewise said the AMT is a priority.
 
He is in a position to use President Bush's 2001 and 2003 tax cuts -- set to expire in 2010 -- as leverage to work a deal on the AMT. And critics have complained that the Bush tax cuts give with one hand and the AMT takes away with the other.
 
Fixing it won't be easy because the AMT raises a ton of money. To hold the AMT to its current level of about 4 million households would cost around $50 billion and to do away with it altogether would cost $1.3 trillion over the next 10 years.
 
The AMT should be repealed, but doing so would take uncommon political heroics because the Democrats would balk at the necessary spending cuts and Republicans at the necessary tax increases elsewhere.
 
One appealing idea is to take the AMT, which after all is flatter, simpler and, depending on how you feel about deductions and credits, fairer than the regular code, and use it as the basis for long-overdue comprehensive tax reform.
 
To the new Congress, we say: Go for it.
 
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