Yesterday, the Senate Finance Committee held hearings on what to do about the growing Alternative Minimum TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. . Throughout the hearing, the two economists on the panel, Kevin Hassett of the American Enterprise Institute and Len Burman of the Tax Policy Center, echoed each other’s statements regarding the fact that the best fix for AMT is a fundamental tax reform package that includes broadening the base while keeping rates as low as possible to raise the given revenue needed to run the government. Here’s a summary from Congressional Quarterly:
Another temporary patch to blunt the effect of the alternative minimum tax is a “given” this year, Senate Finance Chairman Max Baucus said today, signalling trouble for a House attempt to repeal the parallel tax system.
During a hearing, Baucus, D-Mont., asked witnesses for their best ideas to pay for the patch, which could cost $50 billion for one year and more than double that for two years.
“We’ve got to find ways that are realistic here, not that are unrealistic,” Baucus said. That caveat could preclude some of the ideas panelists put forward, such as curtailing the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. , limiting the state and local tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. , and imposing a 4 percent surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on adjusted gross income for couples earning more than $200,000 per year and individuals earning more than $100,000.
Unfortunately, many of the tax facts that Hassett and Burman stated weren’t too popular on the Hill with some members, such as the fact that the mortgage interest deduction is bad tax policy and that the state and local tax deduction mostly favors higher-income taxpayers and should be limited. Burman even suggested that the mortgage interest deduction can actually make it more difficult for lower- and middle-income Americans to purchase a house. But speaking ill of such a sacred cow is almost heresy in Washington as many of the members on both sides of the aisle responded (incorrectly) to Burman asserting that the mortgage interest deduction is very important in promoting home ownership.
Yesterday’s hearing makes it pretty clear that the principle of having a fundamental tax reform that broadens tax bases is supported by experts on both the left and the right. The main hurdle is that members of Congress need to stop believing the messaging put out there on tax policy from special interest groups and instead listen to those who are explaining tax policy in a truthful manner like Burman and Hassett.
To view the video of the hearing, click here.Share