The champion of AMT relief

No one likes the AMT. Not Democrats. Not Republicans. Charlie Rangel says he can end it once and for all.

More from Money Magazine

Stick with your financial diet The safest bets in bank stocks Hang on to your down payment money

Best Places to Live Current Issue Subscribe to Money

(Money Magazine) -- Ever been zapped by the alternative minimum tax? You're hardly alone. This parallel tax system, originally designed to prevent the ultrawealthy from dodging taxes, will ensnare 4 million filers this spring, few of whom consider themselves rich.

It won't be a worry anymore if Rep. Charles Rangel (D-N.Y.) has his way. The head of the House Ways and Means Committee recently introduced what he calls the "mother of all tax reforms," a bill that would forever eliminate the AMT.

President Bush has threatened to veto it; still, the bill offers insight into how the issue might be fixed if the Dems gain control of the White House in November.

Question: Democrats and Republicans alike hate the AMT. Why can't you agree on a plan to kill it?

A. The AMT will bring in close to $1 trillion in the next 10 years. We'd have to raise that elsewhere or cut programs.

Question: There's always a year-end scramble to "patch" the AMT. How is this different?

A. Every year, that patch [which raises AMT exemption, keeping 16 million filers from paying the tax] costs the government billions of dollars and we just borrow more to make it up. Under my plan, we would not borrow money to pay for tax relief, period.

Question: So how would we pay for it?

A. A maximum 1.6 million people would receive an increase in taxes, mostly couples making more than $500,000 [who'd pay a 4.6 percent surtax on income]. People making $200,000 to $500,000 would pay a 4 percent surtax, but the majority would end up paying less than under the AMT. My bill would also end the 15 percent tax rate on carried interest enjoyed by private equity and hedge fund managers.

Question: Critics call your plan the "mother of all tax hikes."

A. The surtax is modest relative to the dramatic pay some of these people get. The upper middle class, meanwhile, is caught in the jaws of an unfair AMT. Under my plan, most of your readers will see a cut in taxes. You can put out a special edition for billionaire readers that says, "Sorry, you didn't make the cut!"

Question: But doesn't Bush plan to veto your proposal?

A. I'm optimistic that we can meet with the administration this year and overhaul the system. Those who have criticized my plan should contribute ideas so we can move the discussion forward.