The Alternative Minimum Tax

According to today's Washington Post, Democrats will include reform of the Alternative Minimum Tax in next year's budget debate. This is good news, especially for those of us with two incomes who are or soon will be caught in its clutches.

Of course, this will open up Pandora's Box to making some of the Bush tax cuts permanent, including some measure of estate tax reform - which I regard as not a tax on the deceased but a tax on the idle rich who inherit the fortunes so bequeathed.

It is our hope that this is an opening for a wider Tax Reform and a permanent adjustment of tax rates so as to balance the budget and pay off the national debt. Entitlement reform has a place here too.

Frankly, any long term tax reform, especially the one devised by the President's Task Force, is basically a merging of the Alternative Minimum Tax and some improved tax credits. Although it proports to abolish the AMT, it really abolishes the rest of the tax code and makes the AMT more equitable at the lower end with more generous credits for children, savings and housing.

Readers of this blog (if there are any) know what we propose in this regard:

• Shifting the responsibility for filing to the employer for all but the wealthiest tax payers, in effect ending the deductibility of wages and salaries for employers from the business income tax (turning it into a hidden VAT). This would also include Social Security Disability, Health and non-retiree Survivors Insurance.

• A very generous credit for dependents - $6,000 per year per child - as a disincentive to abortion, which is passed directly to employees.

• A mimimum taxable wage over and above any dependent credits of $20,000 per year per employee.

• Credits for home mortgage interest with a higher cap than recommended by the Task Force, higher education costs and health care costs, which can be either passed on to the employee or used to provide reduced interest rate mortgages and health care to employees. This would include credits for disability, non-retireee survivors and retiree health insurance if the benefits are more generous than the federal program.

• A credit for employee-designated contributions to faith based or private organizations that provide education up to the 14th grade level and for faith based social service agencies which provide the full range of social service benefits, including mental health and the treatment of addicts and alcoholics - as an alternative to incarceration by the state for crimes committed while crazy or intoxicated.

• States would be encouraged to add an additional dependent credit and credits for faith based education and social services. They could replace income and sales tax with a similar business income tax.

This is also an opening to create private accounts for Social Security along the lines I have recommended in earlier posts. Let us hope that now that the Democrats no longer need this issue to take back Congress they can deal with it rationally, since bringing the trust fund into long term balance will necessitate some kind of set aside, lest we continue the unconscionable practice of using payroll taxes to balance the budget.

We shall see next year.