As President Bush seeks to enact a number of policies that will lead to the eventual fiscal insolvency of the federal government, at least one major challenge has not yet been tackled: the Alternative Minimum Tax. With Tax Reform very possibly delayed until 2006, the AMT will begin to affect millions more Americans. The New York Times' David Leonhardt has the story:

The valuable federal tax deductions that people receive for paying local and state taxes have quietly started to vanish for many households, raising the cost of living in places like New York, Massachusetts and California, already among the nation's most expensive.

The culprit is a once-obscure federal tax provision known as the alternative minimum tax, which was created in 1969 to ensure that a relatively small number of wealthy people did not use loopholes to avoid paying taxes.

But it is increasingly being applied to families with incomes of $75,000 to $250,000 a year who claim relatively high deductions - like the ones for property taxes, state and local income taxes - and the exemption for children. When it does apply, it cancels some of those deductions.

[...]

The interplay between local taxes and the A.M.T. has in effect become a face-off between two forces that many economists consider unsustainable: the rising federal budget deficit and the continuing leaps in home prices. Left unchanged, the alternative tax would produce more revenue by 2009 than the ordinary federal income tax, according to the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute.

[...]

If the tax remains, living in many localities will become more expensive, potentially curtailing the growth in home values that has been a major boon to the economy recently. It could also create pressure to cut property taxes, the major source of public education funding in many communities.

Without a change in the A.M.T., 30 million taxpayers are likely to face it five years from now, many of them concentrated in high-tax states.

Why hasn't the AMT been fixed yet?

The tax falls hardest on states that are overwhelmingly Democratic, including Connecticut, Maryland and Oregon. Some Dermocrats say the uneven effect is one reason that the provision has not yet been changed.

Perhaps the President should spend a little more time trying to fix this major problem in the tax code before he wastes a few trillion privatizing Social Security...