Bush Tax Panel Opposes AMT

Bush Tax Panel Opposes AMT
A Small Glimpse into a Body’s Recommendations for Tax Reform

By Simon Eskow

Continued from the Home Page

The President’s Advisory Panel on Federal Tax Reform is supposed to submit to the Secretary of the Treasury, no later than the end of September. a report containing revenue-neutral policy options for reforming the Federal Internal Revenue Code.

News services reported that the nine-member panel had, at least, decided against maintaining the AMT, but had yet to find alternative sources for the $1.2 trillion budget hole that elimination of the AMT would create over the next 10 years.

President Bush appointed the panel, led by former U.S. senators Connie Mack and John Breaux, in January, after making tax and Social Security reform priorities for his second term. The New York State Society of CPAs formed a similar committee around the same time and submitted its proposed Simple Exact Tax (SET) to the panel earlier this year.

David A. Lifson, the chairman of the NYSSCPA’s Committee on Practical Reform for the Tax System, which wrote the SET proposal, said the president’s panel would either have to eliminate tax benefits or find a new revenue source to make the loss of the AMT revenue neutral.

“It’ll be very interesting to see what road they take,” Lifson said. “It’s unclear whether it would be, for instance, disallowing state and local personal exemptions, or if gets rid of (the revenue loss) with some other revenue raiser yet to be announced…(such as) a new targeted group to pay taxes. There has to be a pay-for.”

Lifson said the most prevalent preference items that taxpayers chose in the AMT forms have been state and local taxes, exemptions for children, and itemized business deductions. Such tax breaks could not be as big as they are now if the AMT were to be eliminated.

The Society’s SET plan would obviate the necessity for the AMT.

According to the proposal the committee submitted to the president’s panel in April, SET maintains most of the existing tax code. It gets rid of filing status and reduces nearly all credits and deductions to a set of clearly defined “exclusions.” And it establishes a method to make it obvious to taxpayers exactly what is being taxed.

The SET tax would tax all incomes over an “acceptable threshold established by our political leaders, reduced by government-approved exclusions at an economically appropriate and socially acceptable single rate,” the proposal states. Income would be defined broadly and exclusions clearly established, using current, highly developed rules and tax vocabulary.

A single tax would apply to all income. Though this seems like a flat tax, it would still allow Congress flexibility and progressivity by allowing for a single personal exemption and the ability to add on other exclusions.

The committee began working on its plan in early January. It held a forum discussion with guest economists and academics to find a fundamental approach to tax reform. Members then used this discussion to develop the SET tax over the next few months in several meetings and telephone conferences.