Latest word on what the Democrats are planning to offer as an "AMT reform":
http://biz.yahoo.com/cnnm/070425/042507_amt_reform_dems.html?.v=1
http://greeneyeshade.townhall.com/blog/g/c543c409-28db-4bd7-831a-18895d9...

Bottom line: what they giveth with the one hand, they taketh away with the other.

A real AMT reform would recognize that the AMT is, very simply, a stealth tax. It hits people who weren't expecting to pay it. The solution is not to "fix" the stealth tax so that it hits a different group of people -- the solution is to *repeal* the stealth tax and (if necessary) replace it with a more transparent form of taxation.

My preference would be a straightforward repeal not coupled with any tax hikes elsewhere. Yes, there would be a revenue loss compared to the CBO "baseline budget scenario"; so be it. The baseline budget scenario is one where the tax burden as % of GDP is on an automatic escalator every year. Just look at the numbers (http://www.cbo.gov/showdoc.cfm?index=7731&sequence=0 ): under the baseline scenario, which assumes expiration of the Bush tax cuts and no AMT "fix", the tax burden automatically grows to 20.1% of GDP from the current 18.4%. It would continue growing further in the years after 2017. One of the main reasons for this is that the AMT is not indexed to inflation, so in the baseline scenario, more and more people pay AMT each year.

Yes, this would increase the deficit; so be it. In the short term, the deficit is not a big problem right now. The real problem is the long-run explosion in the costs of Social Security, Medicare, and Medicaid. We need to rein in the cost of those programs (for example, by indexing the ages of eligibility for SS and Medicare to changes in life expectancy, so that each generation collects approximately the same number of years of benefits as the previous generation).

A second best option would be to pay for AMT repeal by eliminating deductions from the normal tax code. One great option would be to get rid of the deduction for state and local income taxes. Another few possibilities would be to curtail the mortgage interest deduction, or to make employer-provided health insurance a taxable fringe benefit, or to start taxing "private activity bonds" as regular income and not just AMT income.

A third best option would be to pay for AMT repeal by bumping up the normal tax rates a bit. Maybe increase the 28%, 33%, and 35% brackets each by 1-2% or something like that. Not ideal, but still a big improvement over the status quo.

While we're at it, let's make permanent the Bush tax cuts' repeal of two other little-known stealth taxes: PEP (the Personal Exemption Phaseout) and Pease (the itemized deduction phaseout). These ridiculous stealth taxes start taking away your exemptions and deductions once your income goes above a certain level. Congress could have achieved almost exactly the same result by fiddling with the brackets themselves (for example, Pease is basically just a hidden 3% hike to the upper tax brackets), but in their infinite wisdom, they chose to pass a stealth tax hike instead (to make it look like they weren't raising taxes as much as they really were). The Bush tax cuts wisely repeal these two provisions, but unfortunately the repeal expires in 2011.

Any of my AMT repeal proposals, of course, would vastly simplify the tax code. I don't know how many people reading this thread have paid AMT, but I have. It's almost comically ridiculous in its complexity. One year you pay AMT and file an extra form saying how much extra AMT you owed beyond your normal tax. The next year, in some cases, depending on *why* exactly you paid AMT the previous year (some AMT items are considered "timing-related" whereas others are not), you may earn AMT credits and eventually may get the AMT all back (except in some really weird cases where you get it back so slowly that you'll die long before your AMT credit is wiped out). Of course you have to file yet *another* form (in addition to the normal AMT form) to keep track of how much AMT credit you have earned and how much AMT credit you are getting back this year.