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The AMT: Is An "Alternative" Option Possible?

Chalk it up to the new centrism -- or perhaps it's because some issues are so irksome, Republicans and Democrats must agree that a solution is needed. Whatever the case, two House members joined "Power Lunch" to sound the alarm over the alternative minimum tax (AMT) -- and the 20-month deadline to fix it.

The AMT was devised in 1969 to level the revenue playing field, by ensuring that those in the loftier tax brackets still paid their fare share. But the tax was never indexed for inflation, so many of those whose income is numerically greater -- but not higher in real dollars -- get caught in the drift-net. CNBC's Bill Griffeth reports that in the first year the AMT was enacted, a mere 19,000 Americans paid it; in 2008, some 25 million Yanks are expected to be covered by it.

So what is to be done with this so-called "stealth tax hike"? Rep. John Spratt (D-S.C.), chairman of the House Budget Committee, and Rep. Paul Ryan (R.-Wis.), ranking committee member, addressed the matter jointly.

Spratt led off by taking issue with one aspect of the $2.9 trillion budget submitted Monday by President George W. Bush. The congressman says that Bush gave the budget proposal with the "tagline" that "we'll balance the budget in 2012" with a deficit of zero and no new tax increases.

But Spratt notes that the plan included an AMT that was completely unchanged -- and thus, is hinged upon gleaning $1 trillion via the controversial tax. He bemoans the current means of fine-tuning it as strictly "ad hoc," and says that each year, that seat-of-the-pants modus operandi "gets more expensive." He wants to "patch [the AMT] and fix it" once and for all.

Ryan agrees with his political opponent, adding that merely "patching" the AMT will approach a dreaded "zero-sum game." He declares that his "personal favorite" is to abolish it outright (a view opposed by Spratt) before the next 20-month taxation period has passed -- but concedes that that would leave a revenue gap of $1 trillion. Pressed by Griffeth on whether it might not be prudent to simply index the tax, Ryan cautions that doing so would "cost a lot of money" to the U.S. -- and ultimately be unfair to the majority of Americans.

While the answers may be elusive, one can take pleasure in the fact that the matter has, in Ryan's words, "a lot of bipartisan support."

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  • Sue Herera is a founding member of CNBC, helping to launch the network in 1989. She is co-anchor of "Power Lunch."

  • "Power Lunch" & “Nightly Business Report” Co-Anchor

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Kenny Polcari