The Democrats would be wrong to worry about the Alternative Minimum Tax except for fixes at the edges.
On Saturday the Democrats had U.S. Rep. Rahm Emanuel, D-Ill. give the radio address, calling on the GOP to join the Democrats in reforming the so-called Parent Penalty in the federal tax code, because the Alternative Minimum Tax (AMT) http://www.upi.com/NewsTrack/Top_News/2007/04/14/emanuel_wants_amt_reform has no personal or dependent-exemption deductions- it just has the $62,550 AMT exemption (married filely jointly in 2006 before phase out that begins at $156,400 in 2007).
"Reforming the Parent Penalty is the first step in making the tax code simpler and fairer," Emanuel said. "As you file your taxes this year, let your member of Congress know that this broken system must change."
OK - I am in favor of a small change like this that actually helps the non-well-off. But our corporate media is into its selling of the GOP (read rich folks) propaganda again, this time claiming so many people will be "affected" by the AMT in the future who are not rich, we eliminate the AMT. This is nonsense. For some reason the word "affect" is used rather than telling us the number that actually pay, say 10%, more in taxes than they would pay under the regular FIT calculation. Indeed many folks "affected" by the AMT and needing to do an extra calculation will find that the extra AMT tax is negative - they owe no additional tax.
Indeed the major problem with the AMT is that it deals with adjustments of deductions and exemptions to "adjusted taxable income" (AGI) rather than starting with total income, meaning the sum of all the positive income numbers listed as part of the calculation of the AGI. If you can work the negative numbers in the AGI you can get to a negative AGI - and pay no tax under the AMT even with millions of what you and I would call income.
So I am in favor of allowing all personal exemptions and the standard deduction if taken on the FIT, and even the first, say, $25,000 of the greater of state sales tax/income tax. What I am not in favor of is slanted media reporting that tells you the Bush people showed that a person making $80,000 could have a major AMT tax increase under certain circumstances, while not telling you the taxpayer in the example given Congress pays $9,100 instead of $7,573, and that this is well below a 10% average tax rate (total taxes divided by total income) - and indeed below the average tax rate paid at that $80,000 income level for a standard deduction FIT payer http://waysandmeans.house.gov/hearings.asp?formmode=view&id=5588.
Indeed someone might mention that the AMT For 2007 itemized deductions phase out that starts with an AGI of $156,400, reducing the deductions by 3% of the extent that your AGI exceeds this level, does not affect AMT deductions for medical expense, investment interest deduction, casualty and theft losses, and gambling losses and that all other AMT deductions can not be reduced below 20% of the level claimed. Folks, the AMT is not that harsh on our poor rich folks.
But again, tinkering around the edges - like why a 10% of Adjusted Income wall for medical deductions when FIT has a wall of "only" 7.5% of Adjusted Income, and why disallow all state and local tax deductions, casualty and theft losses, and miscellaneous itemized deductions rather than just those higher than some given amount that would be of course indexed for inflation - yes tinkering around the edges would solve the problems of the AMT at relatively little cost. We could also start the AMT calculation with the sum of all positive income numbers on the income lines in the FIT calculation, rather than starting with "adjusted income". That change, if properly written, could actually make the millions in income folks who now are avoiding all taxes, even with the AMT, into taxpayers - what a thought, eh?.
There is no need to end the Alternative Minimum tax - I prefer to stay with the progressive FIT plus have an AMT that cuts in at higher incomes than under current law. Let's only tinker with the AMT.