The fairest alternative

November 13, 2007

Abroad, if not unanimous, majority of Congress agrees that 23 million middle-income Americans - including 553,000 in Maryland - should be spared the bite this year of the ever-voracious alternative minimum tax. But taxpayers and tax collectors are getting very nervous because the annual AMT rescue hasn't happened yet.

Worse, House and Senate Democrats are not in agreement about how the $50 billion in lost revenues should be offset by raising other taxes - or even whether they should be "paid for" at all.

If tax fairness, rather than political expediency, is allowed to prevail, congressional leaders and President Bush will accept the House approach, which would deliver the middle-class tax relief by ending a tax break that allows wealthy private equity fund managers to pay taxes at a lower rate than most everybody else.

Some of the richest people in America are paying taxes at the rate of 15 percent because the income of money managers is treated for tax purposes like capital gains. Ordinary income between $31,850 and $62,250 a year is taxed at 25 percent.

Correcting this imbalance seems a most appropriate way to repair the AMT, which was originally intended to prevent the very rich from escaping taxes altogether.

Some opponents to the House bill argue persuasively that the AMT fix should not be paid for. Congress never intended for the AMT to reach ever deeper into the middle class; the lawmakers simply neglected to index the measure for inflation. So incomes that seemed quite high 38 years ago don't qualify as rich, or even near-rich, anymore.

Unfortunately, the federal budget has been crafted upon the expectation that the extra $50 billion in AMT money from this tax year will materialize. So the failure to provide a new revenue source would mean Congress has to cut spending or drive the nation that much deeper into debt.

Senate Democrats are hinting they will opt for adding the AMT fix to the deficit. That would be the easiest choice politically, particularly because some hotshot hedge fund managers are major contributors to the Democrats' campaign funds. But it would be the worst choice for the budget.

Meanwhile, the tax forms must be printed soon in order to be mailed out on time. Further delay on the AMT rescue means refund checks could be delayed by weeks or months.

The Senate should pass the House bill as soon as possible and send it to Mr. Bush's desk.

Favoring the middle class at the expense of the wealthy is what Democrats claim to be all about. Now they can prove it.

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