A little experiment goes awry. Something cooked up by pointy-headed people takes on a life of its own, attacking the very people who created it. Its complexity astounding, its stealth the stuff of nightmares, it relentlessly expands, claiming more and more victims. Stepping forward to combat the monster is Š is Š it's the senior senator from Montana, Max Baucus!
Let's call it “Baucus Battles the Blob.” It's not a movie, just real life, but might prove worth watching just the same.
The purpose of the AMT, as it's called for short, was to make sure the middle class wouldn't have to shoulder part of the wealthy's tax obligations - to make sure every taxpayer paid his or her fair share. Nothing wrong with that, is there? Unfortunately, the AMT's reach has spread alarmingly over the years, gobbling up the paychecks of millions of people who never were intended targets. That's because the tax brackets that trigger the AMT aren't “indexed” or automatically adjusted for inflation. People who aren't wealthy today but have incomes that would have qualified as upper-income 1969 - $50,000 to $100,000 - find themselves paying the AMT. The AMT is so complex that it makes completion of the standard 1040 seem child's play. And because of its the bracket-creeping nature, the tax nails more and more middle-income families every year - often taking them by surprise. According to the Washington-based Tax Policy Center, 23 million Americans face AMT this year. That number is projected to grow to 39 million over the coming decade, as incomes rise. All of these people face significantly higher effective tax rates than people paying regular income tax.
Recent word from Baucus, Democrat and chairman of the Senate Finance Committee, is that he's going to lead an effort to repeal the AMT. It's a worthy endeavor, but perhaps easier said than done. That's because as the AMT's reach has grown, so has the revenue it generates. Over the next decade, AMT is expected to bring as much as $10 trillion into the Treasury. Eliminating the tax means eliminating the revenue. The country's heading into receivership fast enough without taking another $10 trillion out of the kitty. The idea of eliminating the AMT is widely supported, but enthusiasm may wane once Congress starts talking about offsetting the lost revenue by raising other taxes or cutting spending.
Worth keeping in mind, however, is something that the Senate Finance Committee's ranking Republican, Sen. Charles Grassley of Iowa, often notes: Congress never intended the AMT to morph into an ever-expanding Blob. It never intended the AMT to hit so many taxpayers. Much of the money is, essentially, being collected thanks to a mistake. The government shouldn't depend on revenue that never was supposed to be collected.
Ultimately, the best way to kill this beast may be to think bigger. AMT is but a tentacle of a larger creature - the federal tax code. Tame that monster.
The federal income tax is far too complex. The complexity is the result of myriad provisions, some favoring special interests, some intended to shape social and economic policy, many intended to close loopholes and ensure people pay. It's an excessively complex system that makes it possible for some people to exploit loopholes. Its complexity makes it inefficient. It requires higher rates, and more government employees to administer than a simpler system would require. Higher rates give people incentives to minimize their tax liabilities, and the complexity helps them do it.
Simplify the income tax. Eliminate most or all the deductions and credits and adjustments. Make it simple to calculate and file. Make the accounting a breeze. The simpler the tax, the more likely everyone will pay his or her fair share.
The AMT is a growing problem, but it's not the problem. It's an unwieldy, inefficient, unbelievably complicated income tax system that made the AMT seem necessary in the first place and has justified perpetuating the mistake it became.
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