The old adage "give with one hand and take with the other" will soon become a reality for millions and millions of Americans who thought they would benefit from the Bush Administration’s 2001 and 2003 tax cuts. In fact, the tax cuts they received may just make them eligible for a whole new tax – the alternative minimum tax (AMT).

The AMT was enacted in 1969 when it became public that 155 Americans who earned more than $200,000 a year paid no income taxes. (Earning $200,000 in 1969 is the equivalent of earning more than $1 million a year today). Enacting a 10% tax on deductions of more than $30,000, the AMT was designed to ensure that wealthy Americans did not escape all federal taxes by taking too many deductions.

But as the tax code and economy have grown, so has the AMT. Under current law, the AMT is projected to affect some 33 million taxpayers by 2010. This would make the AMT almost as common as the mortgage interest deduction is today. In fact, it is expected that 73% of households with incomes between $75,000 and $100,000 will be affected, and 37% of households with incomes between $50,000 and $75,000 will be subject to the AMT.

The AMT has become a growing problem because it has not been adjusted for inflation or for the increasing complexity of the tax code. By reducing the marginal tax rate in the 2001 tax cut, while failing to provide AMT relief, more and more Americans became subject to the AMT. Here’s how the AMT works: You determine your taxes the standard way, then you compute your tax under the AMT, and you pay whichever tax is higher.

The 2001 tax cut will more than double the number of people subject to the AMT from 14 million in 2001 to 33 million by 2010. If the AMT had been indexed for inflation and if the 2001 tax cut had not been enacted, only about 300,000 households would be affected by the AMT in 2010.

Even more troubling for economists worried about our record-breaking deficits is that repealing the AMT would reduce revenues by more than $1 trillion by 2014 if the tax cuts are extended ($660 billion if the tax cuts are allowed to expire in 2010).

Fixing our tax code should be a higher priority than additional tax cuts that will increase our deficit. However, the President’s proposal to make the 2001 and 2003 tax cuts permanent coupled with our current budget deficit of $521 billion have made it extremely difficult to come up with a permanent way to restrict the AMT to those people it was originally intended to catch.

I recently voted for a temporary fix that would extend the increase in the exemption for the AMT for one year. This "fix" overwhelmingly passed the House and a similar proposal is expected to be considered by the Senate. It is uncertain as to whether this modest proposal will be enacted into law.

But even a temporary fix is not a solution. We need to make sensible reforms so that middle-class taxpayers – those who were never intended to be subjected to the AMT – are spared from this tax. We need to index the AMT for inflation, and allow the dependent exemption, state and local taxes, and certain personal credits to be taken against the AMT. These measures would reduce the number of AMT taxpayers in 2010 by 88%, of whom 98% would have incomes less than $100,000.

As more and more Americans become ensnared by the AMT, public pressure will grow to find a permanent solution to the problem. Unfortunately, soaring deficits, coupled with important national priorities such as homeland security and the wars in Iraq and Afghanistan, will make it increasingly difficult to solve a problem that should have been fixed years ago.

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