Repeal of Alternative Minimum Tax (AMT) Proposed
The following is from the North Carolina State University GiftLaw newsletter:
House Ways and Means Chairman Charles Rangel (D-NY) introduced this week the Tax Reduction and Reform Act of 2007 (TRRA 2007). The primary goal of TRRA 2007 is repeal of the AMT. As incomes have grown and the AMT exemptions have failed to keep pace, millions of American taxpayers are now facing a higher tax payment under AMT than under the regular income tax system. If AMT is left unchanged, millions of future taxpayers would transition from the regular income tax to the alternative minimum tax.
Because AMT was never intended to apply to middle income taxpayers, Chairman Rangel has proposed its repeal. However, under the "Paygo" rules of the Democratic Party, he must find an offset or tax increase to replace the estimated revenue loss under AMT of $831 billion over ten years. Therefore, Chairman Rangel proposes to replace the AMT with a new tax on higher-income persons. The new proposed tax is 4% on adjusted gross income over $200,000 and 4.6% on adjusted gross income over $500,000 ($250,000 for single taxpayers).
TRRA 2007 also includes a number of tax extenders and various other tax increases. Chairman Rangel recognizes that a comprehensive tax bill cannot pass this late in the legislative session and plans to hold hearings on major tax reform in early 2008.
TRRA 2007 would also extend the $100,000 IRA charitable rollover for year 2008. The unfavorable news is that the proposed surtax is on adjusted gross income and not taxable income. If a surtax were to pass on adjusted gross income, that would be a significant negative incentive for higher-income donors to make large cash gifts because they would lose part of their charitable deduction. Surtaxes previously have applied to taxable income. A surtax on taxable income is actually a charitable tax incentive, since a cash or appreciated property gift from a higher income person reduces both the income tax and the surtax.
