<http://www.nytimes.com/2005/07/21/business/21tax.html>
July 21, 2005 Tax Panel Wants to End Alternative Minimum Tax By DAVID E. ROSENBAUM WASHINGTON, July 20 - President Bush's tax advisory commission will recommend abolishing the alternative minimum tax for individuals, the commission chairman said on Wednesday. But the chairman, Connie Mack, a Republican senator from Florida from 1989 to 2001, said there was no agreement on how to offset the $1.2 trillion in revenue over 10 years that would be lost if that tax were repealed. The alternative minimum tax was established to prevent wealthy people from taking advantage of so many tax breaks that they paid little if any tax. The tax was enacted in 1969 after a Treasury Department study found that 155 taxpayers with incomes of $200,000 or more in 1967 paid no income taxes. In 2002, the latest data shows, 5,650 individuals and couples with incomes of $200,000 or more paid no income taxes and 83,000 were taxed at an average rate of less than 15 percent. Over the years, more and more middle-income Americans have become subject to the tax. Almost four million taxpayers will owe it this year. Unless the law is changed, 20.5 million will owe it in 2006, and 51.3 million, about 45 percent of all taxpayers, will owe it in 2015. "This is one of the few things that is proven not to work," said Charles O. Rossotti, a panel member who was commissioner of internal revenue in President Bill Clinton's second term. The nine-member bipartisan panel was appointed by President Bush in January, largely to get his campaign pledge for tax reform out of the spotlight while his top legislative priority, fundamental changes in the Social Security system, was before Congress. The commission was originally to report this month, but in June, with the Social Security legislation stymied, Mr. Bush extended the deadline for the tax report to Sept. 30. After several meetings here and around the country at which witnesses testified about various aspects of the income tax system, the commission members met on Wednesday in a hotel ballroom for the first public discussion of how their views were shaping up. On the question of the alternative minimum tax, Mr. Mack said, "The panel has come to the consensus that we ought to repeal the A.M.T." He added, "The issue is still open how we're going to pay for it." One of Mr. Bush's instructions to the panel was to make its recommendations "revenue neutral," meaning they would raise neither more nor less money than the current tax code. As for the corporate minimum tax, commission members seemed inclined to recommend that it also be repealed, but to do so as part of many broader changes in corporate taxes. Beyond the minimum tax, no consensus was apparent about what the panel might recommend. Mr. Mack said the commission would probably offer several alternatives rather than one comprehensive proposal. The Wednesday meeting was the last scheduled until September, although four working groups of four members each might meet privately in the interim to develop proposals. Mr. Mack set five goals for the panel's recommendations: tax filing should be easy and straightforward; the system should be fair and without gimmicks; inefficient tax breaks and loopholes designed for special interests should be scrapped; savings should be encouraged; and barriers to competitiveness in American business should be removed. Bill Frenzel, a former Republican representative of Minnesota who was on the House Ways and Means Committee in 1985 and 1986, the last time the tax system was overhauled, said of Mr. Mack's goals, "If we do that, we will be awarded the Harry Houdini prize of 2005." The problem, said Mr. Frenzel, is conflicting goals. "When we tried to be simple," he said, "we had trouble with fairness. When we tried to be fair, we had trouble with simplicity." The panel is considering sweeping alternatives that include a national retail sales tax, a value-added tax and a flat tax that would exclude taxes on interest, dividends and capital gains. But radical changes like those drew scant attention from the panel members on Wednesday, as most of the discussion revolved around modest ones. A long discussion focused on the wisdom of enrolling workers automatically, with their consent, in 401(k) programs and other tax-advantaged savings plans, rather than requiring them to take the initiative. Most members seemed to favor such an approach, but some, like Elizabeth Garrett, a political scientist at the University of Southern California, and Edward P. Lazear, a business professor at Stanford University, said they were uncomfortable with enrollment being the default position for low-paid workers. Ms. Garrett and the panel's vice chairman, John B. Breaux, a former Democratic senator from Louisiana, said that the minimum tax should be abolished, but that wealthy should not escape taxes. When upper-income people are not paying their fair share, Ms. Garrett said, "it erodes confidence in the system." -- "Rest and relaxation rocket to my brain" [Talking Heads]
