While in college, my primary means of transportation was an olive-green Ford LTD, an oversized and austere sedan more suited to transporting a family of five than a student attempting to wangle a date or two with available coeds. While the car ran reasonably well, for some reason, its left rear tire kept going flat. That tire was patched more than a cut-prone fighter before I emptied my meager savings account and bought one of the best brands offered at the time. The new wheel outlived the car.
The Alternative Minimum Tax has a lot in common with my former tire. It's been patched up year after year, but not replaced by a more permanent and expensive solution.
Recently, though, House lawmakers voted 233-189 to rescue roughly 20 million taxpayers from the Tax Code's most dreaded acronym -- and in the process to save mostly upper-middle-class earners an average of $2,300. Not bad, to be sure, but the one-year relief comes with a price -- specifically, $61 billion, which the House bill attempts to temper by raising taxes.
Their counterparts in the Senate have opposed increasing taxes to pay for AMT relief, but it's a rock-and-a-hard-place scenario. If no one took any action, for example, it's estimated that the number of taxpayers swept up in the AMT tsunami would spike from roughly 4 million to potentially as many as 30 million. That's what happens when a well-intentioned law passed nearly 40 years ago has never been indexed for inflation and, like my bad tire, now has to be patched on an annual basis.
Late last year, the haggling over revenue-raising "offsets" carried well into December before an AMT fix was passed.
The recent bill, however, includes a measure that would hike the taxable rate on the profit-sharing income of managers of private equity and hedge funds to a rate of 35 percent, from its previous level of 15 percent. That, according to lawmakers, would raise more than $30 billion over a 10-year period. The bill would also disallow certain deductions that oil and gas companies currently receive for domestic production. Estimates for that measure would raise just under $14 billion.
Other provisions include requiring credit card companies to disclose payments made to merchants for card transactions, which could raise up to $10 billion, and also closing a tax loophole that allows multinational companies to sidestep paying taxes on income earned on U.S. shores. That, lawmakers figure, would be good for about $7 billion.
But like most things in Washington, it isn't going to be quite that easy. The White House has promised a veto of the House AMT fix if it contains new revenue provisions.
But a far larger problem looms in the fact that, like my tire, you can only keep throwing patches on the AMT for so long before you have to break down and buy a new one.
And trust me, a permanent AMT fix will be far more costly than a new tire.
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