Major tax issues confront 110th Congress.

• Author: Prysock, Mark
• Position: Washington insights

The 110th Congress is now well underway. Rep. Charles Rangel (D-N.Y), a 19-term member from Harlem, now chairs the House Ways & Means Committee. Sen. Max Baucus (D-Mont.), a five-term member, now heads the Senate Finance Committee. These two men will drive Congressional tax policy for at least the next two years.

Both have articulated their short-term goals; both have already acted on some of these key items. With four months of this Congress gone as this is being written, it's an opportune time to examine the major tax issues likely to emerge in the coming months.

Small business taxation--and tax relief--has already surfaced as a key issue. Both the House and the Senate have approved legislation increasing the minimum wage by $2.10 over the next two years. The minimum wage hike is coupled with a package of small business tax relief provisions, including an extension of the work opportunity tax credit; an increase in the [section]179 small business expensing allowance; several family business tax simplification measures; and several tweaks to S corporation tax law.

These measures were folded into H.R. 1591, an emergency supplemental appropriations bill that President Bush has vetoed over Iraq-related provisions. At press time, lawmakers and the President were negotiating over how to proceed.

Another top issue that Congress must address before the November 2008 elections is the individual alternative minimum tax (AMT). Absent legislative action, more and more individuals will be subject to the AMT rather than the regular tax.

A recent study drives home the shocking growth in AMT filers. In 2001, 2.4 million individual tax returns contained an AMT liability. By 2010, that number will jump to 37.1 million returns. Congressional leaders are well aware of this ticking time bomb in the tax code, and have pledged to address it in a substantive way.

The basic problem presented by the AMT is structural: It functions as a parallel tax system, with lower rates and a broader base (meaning fewer exemptions, deductions, credits, etc.). The problem, in a nutshell, is indexing.

The personal exemptions, standard deduction and rate brackets of the regular tax system are all indexed for inflation. Yet, neither the AMT brackets nor the flat AMT exemption are indexed, meaning that more and more taxpayers are falling into the AMT category.

While Congressional leaders recognize the importance of addressing the AMT in the near term, they face one extremely tall...