The Ways & Means held a hearing yesterday on the Alternative Minimum Tax. While there is broad consensus in the tax world that the AMT is broken, there is little common ground on exactly how to go about fixing it. To date, Congress and the Administration have confined their efforts to temporary, one or two year “patches” that raised the AMT exemption just enough to limit the growth of AMT taxpayers. The current higher exemption runs through 2006, however, so Congress needs to act in the next year if it wants to prevent the number of taxpayers who pay the AMT from increasing dramatically next April 15th.

With that in mind, the lead from yesterday’s hearing was Congressman Richard Neal’s announcement that they would be offering a permanent solution to the AMT in the next three weeks, with a goal of resolving the issue in the next few months. What might that plan be? Fox News Sunday asked Ways and Means Chairman Charlie Rangel about his plans for the tax code over the next couple years. Here’s the part that caught our eye:

WALLACE: But are you talking about specifically, sir, rolling back the tax cuts, the Bush tax cuts?

RANGEL: No, we’re not talking about that, but we are — we may be talking about redirecting those tax cuts. You know, we have 23 million people in this country that have Alternative Minimum Tax burdens, close to $1 trillion over the next 10 years, and that’s not even on the president’s radar screen.

And so within the system, there can be more equity without increasing the tax burden.

WALLACE: So you’re suggesting that you might do something about the president’s tax cuts for the wealthy before they expire in 2010?

RANGEL: Well, all I can say at this point in time — that we in the majority and the minority on the Ways and Means Committee are working very closely with the secretary of treasury, Hank Paulson, not only on taxes, but on Social Security and trade and a lot of other areas, to see whether we can find more equity within the system without having partisanship.

So taxes is one of the issues that we’re looking at, yes.

WALLACE: So it’s on the table.

RANGEL: Everything is on the table. How much we can accommodate each other is something else.

To date, the S CORP Association and its allies have focused on targeted tax threats like expanding the application of payroll taxes to include more S corporation income, raising or eliminating the Social Security earnings limit, or changing accounting rules such as eliminating LIFO.

But raising overall individual tax rates would have just as dramatic an impact on S corporations as individuals – since S corporations pay taxes at the individual shareholder level. Remember, when S corporations were created, the top personal tax rate was 91 percent! Today, that rate is 35 percent. Any effort to roll back the rate relief that has occurred over the past half a century, under both Republican and Democratic administrations, would obviously harm S corporations and partnerships. Something to be wary of.

Meanwhile, BNA reports Finance Chairman Max Baucus is pressing for a two-year extension of the so-called AMT patch. “I think its good policy to extend it for another year because we’ll have to do it anyway,” he told reporters. While obviously less expensive than a permanent fix, a two-year extension still would reduce projected federal revenues by more than $100 billion. Under the current pay-go budget approach, the tax writers would need to find offsets to cover that revenue impact.

Note: For more background on the AMT, the Joint Committee on Taxation has released a comprehensive summary of the issue.