Senator McCain has – until now – included a promise to repeal the AMT in his economic plan.
However, a few days ago, he introduced the idea of a phase out, rather than a repeal. In a June 10 speech, he said, “I will also propose … a phase-out of the Alternative Minimum Tax.”
In 2007, he clearly wanted a repeal, stating, “I am committed to repealing this tax before millions of American families are forced to devote even more of their hard earned money to paying for the spending largesse in Washington.”
The phase out, as opposed to a repeal, would still benefit those middle class Americans who have become unwary victims of the AMT. Analysts, however, believe that 4 million Americans (at the highest tax brackets) would still be subject to the AMT – and that the AMT would remain on the books for a full term during a McCain presidency.
The proposed plan would, in years 2009 through 2013, impose a “patch”, much like the one currently in place, that increases with inflation each year. McCain would then index the exemption amount to inflation plus 5%. Once the exemption level for married couples reaches $143,000, the exemption would then revert to being indexed to inflation.
Why the switch on policy? Money. Eliminating the AMT, while popular, would certainly result in reduced tax revenue. The patch is estimated to cost $1.4 trillion over 10 years, while a complete repeal would cost an additional $600 billion. That hit to revenue would have to come from some where – and now is not a favorable time to be talking about increasing other taxes to offset decreased AMT revenues.
Senator McCain is certainly not alone in this conundrum. When faced with the opportunity to repeal the tax in 2007, Congress did not, instead putting a last minute “band aid package” together.
