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BNA ($) is reporting that House Democrats have stated that they are three weeks away from having a complete overhaul bill for the AMT (UPDATE: free article on same topic). The reporting on the AMT has reached a fever pitch in the last few weeks, with the latest story I’ve heard was on NPR’s Morning Edition just this morning (though it was almost comical rather than newsy with rich people whining).

For those that need an AMT primer, see my story from last year. Basically, the problem with repealing the AMT is that every year that Congress postpones doing something the worse the fix is going to be from a revenue perspective. Senate Democrats want a two year fix in order to study the tax code and make suggestions. That also gets us to 2010, when all of the Bush tax cuts expire and the revenue hit will be much less.

I don’t see an AMT repeal happening without fundamental tax reform. The cost of the bill alone would require such large “revenue raisers” to fall under the Pay as you Go rules that the Democrats have put in place that it will basically require a large deduction to be taken away or tax rates to be raised.

The problem that I see is not that we need to repeal the AMT. I think we need to repeal the regular code and move to the AMT. There are far fewer deductions and far fewer complications than the regular tax code. The biggest current complication is having to calculate your income twice.

I firmly believe that we need to trash the entire IRC and start again. Starting with the AMT would be a grand idea, but I’d go even further. Take all of your income from whatever source (including dividends, capital gains, and inheritances), apply a large standard deduction, and have tax rates of 25% and 30% in similar places to the current AMT’s rates of 26% and 28%. Make the standard deduction large enough that someone at 150% of the poverty level pays no income taxes and index that puppy for inflation.

Do away with all of the giveaways under the Code and take out the complications. Make it so just about anyone that does not own a business can file their own taxes. Take out the Estate Tax and the special tax rates for dividends and capital gains. Take out everything that complicates the Code needlessly.

The income tax would still be progressive because the large standard deduction will be enough to make the effective tax rate climb upwards for a long time before hitting the marginal tax rate. Progressivity doesn’t just come from having 15 different tax bands.

Taxing all income the same also makes the system way more progressive than it currently is. The wealthy generally rely on dividends, capital gains, and inheritances for their income. The less wealthy generally rely on their wages for their income. Currently, dividends and capital gains are taxed at 15% and wages at rates up to 35%. That puts the onus of the tax on people that rely on wages (the less wealthy) rather than on those with the best ability to pay (the wealthy). Taxing all income the same fixes this issue with the Code.

A simple, fair, and efficient tax code should be the goal of us all. Unfortunately, the lobbyists and easily swayed Congresscritters stand in the way (not to mention tax complexity is a gold mine for my profession). Do I think I’ll ever see an easy tax code? No, but I can dream.