The Alternative Minimum Tax (AMT) was originally intended to make sure a handful of rich people - 155 families - weren't able to almost avoid paying federal income taxes entirely. That was in 1969. Now, because the AMT isn't indexed to inflation, it affects a lot more families than that, and it will continue to expand its reach.
The Congress is considering legislation that would freeze the AMT for one year. They estimate a loss of $50 billion in tax revenue as a result, and according to the Democrat's pay-as-you-go rules, they have to make up for that if they freeze the tax for a year. There in lies the rub.
Because it extends some other tax breaks, the total cost of the bill is about $76 billion. And all of that must be accounted for, with other budget cuts or tax increases. The piece getting the most attention is the plan to increase the taxes that hedge fund managers and their ilk pay. The bill estimates that this tax increase will cover about a third of the costs:
[T]he most controversial provision could be to raise $25 billion by revoking a tax break on "carried interest" — income earned by investment managers at private equity funds, venture capital funds, real estate funds and other partnerships. Under current rules, much of that income is taxed as capital gains at 15 percent rather than as individual income at rates of up to 39.6 percent.
Some of the Senate Democrats aren't as supportive of the bill as you might think, and Republican Senators just want to freeze the AMT and not worry about replacing the revenue - champions of fiscal restraint that they are.
Bush is saying he won't support it, and would likely veto it. Which is strange, given this:
[W]hen President Bush convened an advisory panel in 2005 to propose an overhaul of the entire tax code, the White House instructed the panel to eliminate the alternative minimum tax and make up for the lost revenue by raising taxes elsewhere.