Democrats’ plan could threaten 30 million people with tax hikes

WASHINGTON – President Obama’s Democratic allies in the Senate promise to cut the deficit by almost two-thirds over the next five years, but their budget plan could threaten about 30 million people with tax increases averaging $3,700 because of the alternative minimum tax.

The alternative is tax increases elsewhere in the revenue code averaging up to $100 billion a year after 2011 to continue alternative minimum tax relief and also curb taxes on people inheriting large estates.

The Democratic plan released Wednesday by Senate Budget Committee Chairman Kent Conrad of North Dakota relies on such boosts in revenues to carve the deficit from $1.4 trillion last year down to $545 billion by 2015.

The minimum tax, or AMT, was enacted four decades ago to make sure wealthy people couldn’t avoid taxes altogether. But it wasn’t indexed for inflation in people’s incomes, so it gets “patched” every year or so in order to prevent people from being surprised by multi-thousand-dollar tax bills.

Estates larger than $7 million would also be threatened with higher taxes if Conrad’s plan is carried out.

Conrad says lawmakers will have to find revenues elsewhere in the budget to pay for AMT and estate tax relief after 2011, which could require tax increases averaging up to $100 billion a year elsewhere in the code if Congress is going to keep its promises under tough new budget rules.

Conrad says he hopes the dilemma will force Congress to overhaul the complicated and inefficient U.S. tax code. The Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, says that 33 million taxpayers would face the AMT in 2012, adding $3,700 on average to their tax liabilities.

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