The Democrats' need to get rid of the AMT suggests the possibility of broader tax reform. House Ways and Means Chairman Charles Rangel has put forth such a proposal, with a cut in the corporate tax rate and huge tax increases on very high earners. But it's a nonstarter as long as George W. Bush is in office.
Another approach with more bipartisan appeal would be to combine AMT repeal and extension of the Bush tax cuts with a mass repeal of tax exemptions, along the lines of the 1986 bipartisan tax law.
Meanwhile, in this election cycle, the AMT remains largely invisible to the voters who are threatened by it, and it will remain so unless Congress somehow fails to patch it this year. The more visible issue is whether or to what extent taxes will go up in 2010.
Democrats, conscious of the popularity of some recent governors who have raised taxes (like Mark Warner of Virginia), seem on the surface unfazed by the political risks of tax increases and are preparing to argue that they'll raise taxes only on the rich. But this may be awkward at a time when the budget deficit is rapidly declining and when we face the nontrivial possibility of a recession.
A tax increase in a recession is usually not a good idea. And Republicans will say that when Democrats promise to tax the rich, they end up raising taxes on the ordinary person, as Bill Clinton and the Democratic Congress did in 1993. The Democrats' desperation to patch the AMT and their willingness to break their own paygo rule suggest that they fear the wrath of those New Jersey suburbanites more than they let on.