Here’s more on what the House might be considering for its next tax bill this spring. As you’ll recall, last week they announced they would put forward a plan to address — that is, slow the growth of — the Alternative Minimum Tax among upper income taxpayers. This plan would be permanent, and would likely be offset with targeted tax increases elsewhere.
What would these targeted tax increases look like?
According to several sources, the Ways and Means Committee plans to lower the income thresholds applying to the 33 and 35 percent tax brackets. For married taxpayers filing jointly in 2006, the 33 percent bracket begins at $188,450 and the 35 percent bracket kicks in at $336,550. This plan would presumably lower both those thresholds. As Bloomberg.Com reported last week:
“Rangel said the 23 million households scheduled to be subjected to the minimum tax this year would benefit from a redistribution of Bush’s tax cuts. It would also help another 7 million ‘middle class’ households that don’t ‘receive the benefit’ of Bush’s ‘tremendous tax cut.’
While Rangel wasn’t specific, it would be possible to increase the amount of taxes owed without adjusting top rates. Reducing the threshold for triggering the 35 percent rate to $300,000 from $336,550, for example, would effectively increase the bill on the $36,550 difference by 2 percentage points, or $731.
A similar result would occur if Congress lowered the threshold on the amount of income taxed at 33 percent. Currently, a married couple’s income between $188,450 and $336,550 is taxed at 33 percent.”
In addition, there’s widespread speculation that Ways & Means will impose new limitations on the deductions families in those income ranges currently receive. These additional revenues would than be used to offset the revenue loss from permanently reducing the size of the Alternative Minimum Tax.
For S corporations, such a proposal could result in higher overall business income taxes. S corporations, like partnerships, pay their business taxes at the individual rates. Moreover, compared to a straight rate hike, this tax increase appears to hit smaller and less profitable S corporations. Just how much will their taxes go up? We’ll have to see what is actually put on the table.