According to published reports, House Democrats are preparing legislation to permanently shield all but the wealthiest of taxpayers from the alternative minimum tax.According to the New York Times, the plan is still in its early stages, but would have the end goal of exempting millions from the tax -- although how exactly the revenue loss would be offset remains to be determined. The newspaper said that by the close of May, House Democrats hope to draft a permanent overhaul of the AMT that would exclude anyone who earns less than about $200,000 a year -- which covers about 97 percent of taxpayers.

According to a recent backgrounder released by a House committee, there are two main reasons for the increasing number of taxpayers who will be subject to the AMT.  First, the cuts made under the regular income tax (and which were enacted as part of legislation in recent years) have significantly narrowed the differences between regular and AMT tax liabilities for middle and higher income individuals.  Second, regular income tax brackets are indexed for inflation, but the AMT thresholds are not.  Over time, this has reduced the differences between regular income tax liabilities and AMT liabilities at lower income levels.

Republicans, including President Bush, have publicly said that they agree the alternative minimum tax is out of control and ought to be frozen if not eliminated entirely. But so far Congress has only prevented the AMT’s expansion with a series of one-year patches.

According to projections, eliminating the AMT plan would leave a $1 trillion hole in the federal budget over the next decade.

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