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Bush plan leaves alternative minimum tax untouched

WASHINGTON—President Bush's budget ducks tough issues such as shoring up Social Security and overhauling the alternative minimum tax, which threatens to punish millions of middle-class taxpayers in coming years.

The tax was intended to close loopholes for the rich, but it wasn't indexed to adjust for inflation, so income that once was considered rich is today middle-class and threatened by the AMT.

For several years, Congress has avoided the AMT's impact on middle-class families by passing one-year patches. Bush's budget assumes no more patches after the 2008 tax year. He also assumes that new revenues from the AMT will help him balance the budget by 2012. Congress is unlikely to go along, however.

"The budget rests on the assumption that the AMT will be allowed to expire and affect more than 40 million households in 2012, something nobody believes would be allowed," said Robert Greenstein, executive director of the liberal Center for Budget and Policy Priorities, a research organization.

The president takes a pass on how he thinks the AMT issue will be resolved. With each passing year it would rake in more revenues for the Treasury if left unfixed—$93 billion by 2012, according to the nonpartisan Congressional Budget Office.

Bush also assumes that Congress will make permanent his first-term tax cuts, which are set to expire in 2010. If the tax reductions were made permanent and the AMT were allowed to hit millions of Americans, the AMT would reclaim any benefits from the cuts for many taxpayers.

On Social Security, the president repeats his 2005 call to let individuals divert portions of their payroll taxes into stocks and bonds. He now envisions this beginning in 2012, three years after he's left office. He offers no long-term fix for the retirement program, despite the impending retirement of the baby boom generation, which will strain its finances.

On health care, Bush pledges to squeeze $78 billion from projected federal spending increases over the next five years. He'd cut the rate of payment increases for health-care providers and increase premiums for wealthier retirees.

He also proposes a new $15,000 standard deduction for health-insurance costs but offers no comprehensive solution for the 46 million Americans who lack health insurance.

The AARP, the powerful lobby for older Americans, on Monday accused the president of punting on health care with "piecemeal cuts that threaten to damage critical programs without addressing the fundamental problems."

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(c) 2007, McClatchy-Tribune Information Services.

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