Paying for AMT Patches Can Take Many Forms

Last week the Chairman of the Senate Budget Committee, Kent Conrad (D-ND), released his Democratic budget plan (see our analysis of the Chairman’s Mark here, and a discussion of the amendments accepted and rejected by Committee here). The budget plan would result in deficit levels of about 3 percent of GDP ($545 billion) by 2015, a whole $250 billion below the President’s budget. A large part of this difference, though, is due to the assumption that the Alternative Minimum Tax (AMT) patch and the estate tax fix would be fully paid for after the next two years. (Note: because the AMT was not indexed for inflation, it affects increasingly more people every year; the AMT “patch” alters the tax so that those people are not hit by the tax).

The question of how they would be paid for, though, is left to Congress. In other words, the lawmakers will have to find savings or revenues in other areas of the budget to pay for AMT patches, beginning two years down the road. Conrad hopes the new fiscal commission will be able to identify these offsets. As the document explains:

The Chairman’s Mark ensures that the cost of AMT relief does not have to be offset while the economy is recovering from the recession, and creates an opportunity for the President’s bipartisan fiscal commission to develop tax reform proposals to address the AMT permanently in a way that does not increase the deficit.

Conrad is right to attempt to force Congress into making some tough choices regarding the AMT. It is true that in many ways it makes the budget less realistic; getting to 3 percent of GDP is dependent on a (fiscally responsible) policy with very little support that may never materialize.

But rather than capitulate, those who support finding offsets have to push for that policy. Widespread support for patching the AMT doesn’t make borrowing to do so any less damaging to the fiscal health of the country. If policymakers want to extend the tax break, they need to pay for it. Identifying specific offsets for the AMT patch and estate tax fix would be preferable; but drawing a line in the sand declaring that they must be paid for is a good start.

And paying for the AMT doesn’t have to include tax increases; it can be done all through cutting spending. Or by raising taxes. Or by both. It just shouldn’t be done by adding to the debt. In fact not one strong case has been made as to why we shouldn’t borrow hundreds of billions of dollars to offset a middle class tax cut, and we would challenge that there just isn’t one.