We have had a chance to digest a bit more of the Rangel bill introduced last week.

There was a lot to digest. Repealing section 199, LIFO, and IC-DISC, while extending the depreciation period for intangibles will all adversely impact our members to one degree or another. The fact that these tax increases are being used to offset a rate cut for C corporations doesn’t help matters.

Focusing on the individual side, the bill would substitute a new four-percent surtax on individuals and businesses earning more than $150,000 in order to offset the cost of repealing the individual Alternative Minimum Tax (AMT).

Whether this is a good trade-off depends on your particular circumstances. Some taxpayers will see their overall tax burden increase while some will see their burden go down. The Tax Policy Center has an excellent analysis that breaks out just who benefits under HR 3970 and who will be harmed.

One challenge Chairman Rangel faces in selling this trade off is the question of competing baselines. Congress operates under a current “law” baseline. If the AMT is going to expand from 5 to 25 million taxpayers next year, preventing those 20 million taxpayers from having to pay the AMT is scored as tax relief.

Taxpayers, however, operate under an “expectations” baseline. The 20 million taxpayers who didn’t pay the AMT last year do not expect to pay the AMT this year either. In their view, protecting them from the AMT isn’t tax relief, it’s the status quo.

So if Chairman Rangel successfully substitutes a 4 percent surtax for the AMT, few taxpayers are likely to give him credit for saving them from the AMT, while all the taxpayers subject to the new surtax will know just who to credit.

The tension between these two approaches is captured by two tables in the Tax Policy Center’s report. One uses Congress’ baseline and shows that only 18 percent of taxpayer’s earning between $200,000 and $500,000 will see their taxes increase, while the other uses the expectations baseline and shows that over 50 percent of those taxpayers will see a tax increase.

That’s been the challenge with the AMT all along. Some have observed that since we never intended to collect all this revenue in the first place, we shouldn’t have to offset its repeal. Given the challenge of the competing baselines and the size of the alternative surtax, this perspective is likely to get a lot more popular over the next few weeks.