The President's Advisory Panel on Tax Reform met yesterday in their first gathering where they discussed reform proposals instead of actually hearing testimony from witnesses. At the meeting they revealed their first recommendation on changing the tax code: repeal of the alternative minimum tax. The panel came to their consensus to recommend repealing the AMT, however now they will have to find a way to replace the more than $1.2 trillion the Treasury expected to collect from the tax over the next ten years. The AMT affects 4 million families this year but since it doesn't change with inflation, is expected to hit more than 51 million families in ten years from now. For more, click here.

The administration has been using the release of the mid-session revenue and the report of a lower deficit as an excuse to squawk about their excessive tax cuts causing economic growth. Simply because deficit projections were lowered to $333 instead of a whopping $427 billion for FY 2005 does not mean that Bush's tax policies have proven to be pro-growth. Instead, much of the reason for the deficit reduction lies in the fact that revenue levels are up in 2005, mainly when it comes to corporate taxation. A number of particular tax laws has led to an increase in tax collections which will prove to be more temporary, according to many analysts, than the administration is currently admitting. The expiration of a specific business tax cut along with strong capital gains returns and a concentration in nonwitheld taxes led to a 2005 surge in revenue. The surge remember, is still lower than levels of revenue which were predicted for 2005 back in 2002. To read more on how the 2005 revenue collections have affected predicted deficits, see this CBPP report.

Sen. Jon Kyl (R-AZ) said yesterday that he continues to hold conversations with Finance Committee ranking member Max Baucus (D-MT) regarding specific parameters of possible estate tax reform. According to reports, it is likely the Senate will vote on a compromise before the end of August. While many senate Democrats feel pressured to negotiate on the estate tax before the mid-term elections, the specifics that Kyl is discussing could severely gut the tax. Kyl has made it known that he is in favor of an $8 million exemption level, and has also expressed support for instating a ten-year pay period. Concerning the tax rate, Kyl has said it would be best if it were tied to the capital gains rate (currently 15 percent although it is slated to revert to 20 percent in 2008). The Urban-Brookings Tax Policy Center estimates that this exemption, coupled with the low tax rate, would reduce estate tax revenue by 93 percent overall. In that sense, the reform would be little better than outright repeal. Not only would a lower the tax rate significantly reduce the amount of revenue brought in by the estate tax, but it should also be viewed as a possible back-door attempt to do away with the estate tax altogether. If the capital gains tax rate were ever brought down to zero, the estate tax would effectively be eliminated. To read more on this, see the Watcher article, "Rhetoric Heats Up On Estate Tax as Political Reality Pushes Compromise," as well as the CBPP report, "Kyl Estate Tax 'Compromise' Proposal Extremely Costly; True Cost Likely to be Masked."