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Clinton Proposing $33B Tax Plan

January 20, 2000

WASHINGTON (AP) _ Millions of middle-class taxpayers, especially families with children, would be protected from the complex alternative minimum tax under a $33 billion plan proposed Thursday by the Clinton administration.

In his fiscal 2001 budget to be released next month, President Clinton will ask Congress to ensure that the alternative minimum tax is not triggered when people claim personal exemptions, such as the $500 per-child tax credit, or take the standard deduction instead of itemizing.

``Because of design flaws, the alternative minimum tax is increasingly hitting families in an unintended manner,″ said Jonathan Talisman, the Treasury Department’s assistant secretary for tax policy.

The minimum tax was originally created to make sure the wealthy do not escape income taxes by taking numerous exemptions, credits and deductions. But it was never indexed for inflation, and as middle-class tax breaks and salaries have grown, so have the number of people subjected to the 28 percent AMT and its highly complex calculations.

For example, a couple with five children with $70,000 in income who claim the standard tax deduction would be subject to the minimum tax in 2000, Treasury Department officials said.

If nothing is done, Treasury estimates show that the number of people who would have to pay the minimum tax would rise from 1.3 million this year to 17 million by 2010. The proposal outlined Thursday would cut that number to about 7.6 million in 2010, officials said.

The plan, costing an estimated $32.8 billion over 10 years, would gradually make sure all personal exemptions could be deducted without concern of triggering the minimum tax. It would be phased in this way:

_For tax years 2000 through 2007, personal exemptions for all but two dependents would be deductible.

_For tax years 2008 and 2009, personal exemptions for all but one dependent would be deductible.

_For tax years 2010 and beyond, all personal exemptions could be deducted.

In addition, the Clinton administration plan would enable taxpayers to claim the standard deduction for minimum tax purposes instead of being forced to itemize. Under current law, itemized deductions don’t count toward the minimum tax, yet for some taxpayers it is more advantageous to take the standard deduction.

Last year, Clinton signed into law a bill passed by Congress to protect taxpayers who claim numerous exemptions from the minimum tax, but that measure covers only two years.

The Republican-led Congress included outright repeal of the tax in last summer’s 10-year, $792 billion tax cut, but Clinton vetoed the bill because it would have used too much of the projected budget surplus. Rep. Bill Archer, chairman of the tax-writing House Ways and Means Committee, called the administration plan ``half a loaf″ and urged that the tax be abolished.

``Until we get rid of the AMT, this tax hike time bomb will continue to trap millions of middle-income families,″ said Archer, R-Texas.

The national taxpayer advocate at the Internal Revenue Service, Val Oveson, said in his recent report to Congress that the alternative minimum tax is one of the worst complexities in the tax code and also recommended that it be phased out.

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