Members of President George Bush's tax reform panel voted unanimously to recommend abolishing the Alternative Minimum Tax (AMT) during a meeting on July 20. But Senator Connie Mack, the panel's chairman, questioned how to make up for the $1.2 trillion revenue shortfall that would be caused by an AMT repeal.
Mack and the panel are now studying ways the AMT repeal could be paid for through "tax rates and expenditures," says Tara Bradshaw, a tax panel spokeswoman. Bill DeReuter, assistant director of government relations for the Financial Planning Association, says there could be cutbacks on any number of tax expenditures--like deferred taxes on retirement savings plans to cutting back on the mortgage interest deduction--to remedy a revenue drop from AMT repeal.
The AMT was adopted in 1969 to ensure that a small group of high-income taxpayers would have to pay some taxes. But now the AMT is hitting many more taxpayers than it was ever intended to. The tax panel said the AMT is affecting more taxpayers because AMT exemptions and tax brackets are not indexed for inflation.
The tax reform panel is expected to come out with its recommendations on reforming the tax code in September. DeReuter, for one, says Congress is so busy with Social Security and retirement savings reform that lawmakers "won't have time" to repeal the AMT this year. Tax reform, he says, will be addressed in 2006.