Tax reform

Two federal tax issues are receiving consideration attention in Washington, and both warrant careful review. One is an advisory panel's recommendation to end the alternative minimum tax, and the other is a proposal to permanently eliminate the federal estate tax.

Alternative minimum tax

The alternative minimum tax was created to make sure affluent taxpayers, who can use a variety of legal loopholes, don't wind up paying no taxes at all. But as income levels have risen, many middle-class Americans are being socked with extra taxes.

President Bush appointed nine tax experts to the Advisory Panel on Federal Tax Reform, and the group's first consensus recommendation was to scrap the alternative minimum tax, because it is unfairly pinching taxpayers in tax brackets much lower than originally intended.

Eliminating the alternative minimum tax would reduce federal revenue by an estimated $1.2 trillion over 10 years. In addition to recommending changes in tax laws, the advisory panel was charged with making sure any restructuring produced the same amount of revenue as current laws.

The revenue could be made up with changes in tax rate, or some loopholes could be eliminated. Another option would be to adjust the alternative minimum tax so that it once again targets only those in the very highest tax brackets who might not pay any taxes under current laws and tax breaks.

Estate tax

Under the 2001 tax reform, the estate tax rate has been decreasing each year while exemptions have been increasing. The tax will end in 2010. But without further congressional action, the federal estate tax will return in 2011 -- at the highest rates and lowest exemptions of the old tax.

The U.S. House voted in April to abolish the tax. The U.S. Senate is near a vote.

Most estates are exempt from the tax. According to the Internal Revenue Service, slightly more than 2 percent of individuals who died in 2001 left estates that were subject to the tax.

Both the alternative minimum tax and the estate tax are part of an overwhelmingly complex tax code that is long overdue for an overhaul. The president's tax experts face a major task of coming up with a plan that will simplify the process, make it more equitable and satisfy the federal government's revenue needs.