With just about every politician in Washington in agreement that some permanent fix needs to be made to the alternative minimum tax, the Tax Policy Center has released a report outlining a number of possibilities.Created as a parallel tax structure in 1969 that was aimed at preventing the super-rich from using deductions and shelters to avoid paying taxes, inflation has turned the AMT into a different monster. The center’s report notes that fewer than 400,000 families were affected by the tax in 1985, this year, about 3.8 million households will see their tax bills rise by an average of $6,813.

Assuming that President Bush's tax cuts expire on schedule in 2010, the 23 revenue-neutral options outlined by the Tax Policy Center -- which would balance the lost revenues of permanently repealing the AMT -- include:

  • Eliminating the deduction for state and local income taxes, which would generate enough cash to repeal the AMT and cut the regular tax rate by 2 percent across the board;
  • Increasing the top three income tax brackets to  24 percent, which would raise the top rate to 43.5 percent;
  • Raising income tax rates by 6 percent across the board; or,
  • Raising the top rate under the regular income tax to 37 percent from 35 percent, and to 41.9 percent starting in 2011.

Most of the options would have little impact on the after-tax incomes of most families and many would actually slightly cut taxes on the middle class while imposing relatively small increases on families with the highest incomes.The paper is available at www.taxpolicycenter.org/UploadedPDF/411408_fix_AMT.pdf.

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