Will Bush Raise Taxes to Fix the AMT?

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Recent news reports have hinted that President Bush might be willing to go along with tax increases on wealthier Americans to pay for a costly fix to the alternative minimum tax. One possibility raised by Democrats is raising taxes on those making $400,000 or more. But don't look for the White House to sign up for any plan that raises tax rates, a move that would reverse one of Bush's signature domestic policies. As one White House official put it, "I've heard no internal discussions on that approach and sense no appetite for that kind of a trade-off."

There are, however, revenue-raising options other than raising tax rates. Indeed, when asked last week for his definition of "tax increase," White House Press Secretary Tony Snow gave a rather narrow answer. "It's something where you change the rates on people," he responded. For instance, Bush's 2005 tax advisory panel called for broadening the tax base by eliminating the deduction for state and local taxes. (It's this deduction that most often ends triggering the AMT.) As a recent analysis of a variety of AMT fixes by the Urban Institute and the Brookings Institution found, "this option raises more than enough money to pay for repeal of the AMT... . As a result, under this option, income tax rates can be reduced by 2 percent across the board." Other options include paying for an AMT repeal by raising capital gains tax rates. But just as with raising marginal income tax rates, this smells like another veto candidate since it would undo part of Bush's 2003 tax cuts.

Then again, how about just repealing the AMT and then, well, that's it? As budget analyst Chris Edwards of the libertarian Cato Institute notes, government tax revenues in the first four months of this fiscal year are coming in at almost twice the predicted rate. If that keeps up, the government will take in an extra $108 billion this year, more than enough to pay for a $40 billion to $50 billion fix for this year. Of course, attempting to predict future revenues is tricky, so perhaps the best move is repealing the AMT now and then working on a major tax reform to entirely replace our creaky, patched-together current system.

Blogger Feedback. About my post, "Wall Street Democrats Try to Revive Clintonomics", Jeff Cornwall, director of the Belmont University Center for Entrepreneurship and author of of The Entrepreneurial Mind blog, writes that "the key to economic growth lies not on Wall Street, but on Main Street. Entrepreneurs are fueling our growth--not the public corporations that dominated the previous century. Neither party seems to understand the economic transition going on in America today."