December 19, 2007
Congressional crisis highlights failures of complex tax code, ‘paygo' rules
For more information, contact: Bill Ahern at (202) 464-5101.
WASHINGTON, December 19, 2007 -- With a new tax year looming just 12 days away, the House of Representatives today passed the long-anticipated Alternative Minimum Tax (AMT) "patch." This version of the legislation, which President Bush has indicated he will sign and which has already been approved by the Senate, will essentially prevent any new taxpayers from facing a tax liability under AMT. The Tax Foundation, the nonpartisan, nonprofit tax policy research group in Washington, highlighted the fact that the AMT crisis shines yet another bright light on the need for fundamental tax reform.
"Save the stories written today about AMT, because you'll be able to recycle them next year," said Scott Hodge, Tax Foundation president. "Crises like these happen because the tax code is such an unwieldy, uncontrollable mess. Sound tax policy requires these one-year fixes, gimmicks, and patches to end. It's time for a permanent solution—one that takes the best features of AMT and the current tax code and merges them into one simpler and fairer system."
The bill passed today was an important step for both taxpayers and the IRS. For taxpayers, it protected millions of new taxpayers from being thrust into AMT and thus facing a markedly higher tax burden. The bill essentially holds constant for tax year 2007 the number of returns that faced AMT in tax year 2006. The IRS will be spared a mad scramble that would have come with the new influx of taxpayers in AMT. Additionally, the Treasury Department indicated that the delay in implementation of the AMT patch likely would have delayed refunds this coming tax filing season.
Much of the debate centered on the House Democrats' "pay as you go" or "paygo" rules. Those rules require that every decrease in taxation be paired with an equivalent decrease in spending or an increase in a different tax. The President indicated that he would not sign an AMT patch bill that included tax increases.
"Budget rules that keep government spending in check are a good idea, but the current ‘paygo' rule simply isn't working," Hodge continued. "It has bitten Congress and the taxpaying public, forcing a long delay in passage of an AMT patch that will spare taxpayers and the IRS the trouble of dealing with 21 million new AMT forms."
The Tax Foundation has been a frequently cited commenter on the Alternative Minimum Tax and the complexities of the tax code more broadly. This year, the Tax Foundation has released two primers on the AMT, one detailing common questions about the AMT and another offering a revenue-neutral solution. All of the Tax Foundation's work on the AMT is available online at: http://www.taxfoundation.org/research/topic/118.html.
The Tax Foundation has also released a report showing the impact of the AMT patch on hypothetical American families. That report is available online at: http://www.taxfoundation.org/research/show/22801.html.
The nonpartisan, nonprofit Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization.
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