Taxpayers who become subject to the alternative minimum tax this year would get a year's respite under a temporary patch being crafted by Sen. Charles Grassley, R-Iowa.
The ranking member of the Finance Committee announced this week that he will soon introduce legislation that will provide taxpayers a "safe harbor" from the AMT, which applies to interest earned on tax-exempt private-activity bonds.
Grassley said in a statement Wednesday that his legislation will protect taxpayers "from being punished for the fact that Congress has failed to deal with the AMT."
"Under my proposal ... a taxpayer would be permitted to disregard the alternative minimum tax if the individual was not liable for [it] for the preceding tax year," he explained. "So, if you didn't have to pay AMT last year, we aren't going to penalize you if you don't file estimated taxes for AMT this year. Just because Congress can't do its job, doesn't mean the taxpayer should be punished."
At the committee's Wednesday hearing on the topic, chairman Max Baucus, D-Mont., said it was "a given" that Congress will enact some kind of temporary relief this year. Panelists at the hearing suggested that limits on the state and local tax deduction and the home mortgage interest deduction could offset the gargantuan cost of repealing the tax down the road, but Baucus dismissed the notions as politically impossible. Grassley has said a repeal should not have to be offset by revenue raisers, since the AMT was never designed to raise billions of dollars in revenue, only to ensure that high-income earners were paying their fair share of taxes. On the House side, lawmakers are crafting their own plan to completely repeal the AMT, with offsets.
Municipal market groups such as the Securities Industry and Financial Markets Association have long advocated a repeal of the tax, since it has historically necessitated a 25-to-30 basis point premium on private-activity bonds. "We continue to monitor AMT reform to ensure what is produced is reasonable and effective reform, especially its effects on the municipal bond markets," SIFMA said in a statement yesterday.
