Correction to This Article
A Page One article on April 23 mischaracterized a statement by John Irons, director of tax and budget policy at the Center for American Progress. Irons said that Democrats may not get much credit for overhauling the alternative minimum tax, but that they will face significant political danger if they do not overhaul it.

Democrats Craft New Tax Rules, New Image

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By Lori Montgomery
Washington Post Staff Writer
Monday, April 23, 2007

House Democrats, aiming to seize taxes from Republicans as a political issue, have come up with a plan to shift the burden of the hated alternative minimum tax onto the shoulders of the nation's richest households.

The proposal, still in its preliminary stages, would attempt to restore the original purpose of the parallel tax structure, which was created in 1969 to nab 155 super-rich tax filers who were using loopholes and deductions to wipe out their tax bills.

Because it was not indexed for inflation, the AMT delivered a significant tax increase to an estimated 3 percent of households this year. Unless the law is changed, it is projected to strike nearly 20 percent of taxpayers when they file returns next spring, many earning as little as $50,000 a year.

House Democrats are trying to craft legislation that would spare those households while providing relief to many current AMT payers. Under a proposal presented last week to Democrats on the tax-writing Ways and Means Committee, families making less than $250,000 a year -- about 98 percent of taxpayers -- would be exempt from the tax. Those earning between $250,000 and about $500,000 would see lower AMT bills, according to Democratic sources who spoke on condition of anonymity because the plan is not final.

To make up the lost revenue, families earning more than $500,000 a year would take a much harder hit from the AMT, as well as other adjustments to the tax code, the sources said. Democrats haven't finalized that part of the proposal. But an analysis by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, suggests that the nation's wealthiest families -- less than 1 percent of all taxpayers -- would have to pay 5 to 13 percent more to offset the revenue lost by exempting the middle class from the AMT, with families who make more than $1 million paying an extra $52,000, on average, each year.

The final package could contain smaller measures, such as raising the standard deduction for married couples, to spread tax relief to 90 million families. That, Democrats said, would establish their credentials as tax-cutters while strongly contrasting with the Republican Party, whose tax cuts since 2001 have disproportionately benefited the wealthy and added billions of dollars to the federal debt.

"A huge number of families will receive tax relief as the result of this. It's something like 87 million to one million," said Maryland Rep. Chris Van Hollen, who chairs the Democratic Congressional Campaign Committee. "It is a great message of fiscal responsibility and economic fairness."

"Taxes can be a winning issue for Democrats," added Illinois Rep. Rahm Emanuel, chairman of the House Democratic Caucus. "And the AMT will be the door through which everyone walks to deal with taxes."

Republicans, who also advocate repealing or substantially rewriting the AMT, dismiss Democratic ideas as "class warfare." Wisconsin Rep. Paul D. Ryan, senior Republican on the House Budget Committee, said raising taxes for the wealthiest Americans would punish small-business owners. He dubbed the idea a "job killer."

Republicans also question the potency of the tax as a political issue, given that most of the people Democrats hope to rescue have yet to feel its bite.

Louisiana Rep. Jim McCrery, the senior Republican on the House Ways and Means Committee, said the Democratic proposal would avoid a tax increase for some, but those people "won't see any more money in their pockets." Meanwhile, "the people who get the tax increase certainly would feel that," McCrery said. "So their proposal could be characterized as a tax increase, and a big one."

Some Democratic strategists also question whether the proposal carries a political advantage. John Irons, director of tax and budget policy at the Center for American Progress, said overhauling the AMT may hold "more danger in it than credit." And pollster Celinda Lake, who has argued that Democrats should develop more cogent economic policies to appeal to middle-class voters, said the AMT is "a little esoteric."


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