February 21, 2005
AMT AS WMD:
Case of Vanishing Deductions: Alternative Tax Called Culprit (DAVID LEONHARDT, 2/21/05, NY Times)
The valuable federal tax deductions that people receive for paying local and state taxes have quietly started to vanish for many households, raising the cost of living in places like New York, Massachusetts and California, already among the nation's most expensive.The culprit is a once-obscure federal tax provision known as the alternative minimum tax, which was created in 1969 to ensure that a relatively small number of wealthy people did not use loopholes to avoid paying taxes.
But it is increasingly being applied to families with incomes of $75,000 to $250,000 a year who claim relatively high deductions - like the ones for property taxes, state and local income taxes - and the exemption for children. When it does apply, it cancels some of those deductions.
The impact is about to mushroom. Barring a change in the law, almost 19 million taxpayers will be subject next year to the alternative minimum tax, or A.M.T., up from roughly 3.4 million this year and 1.3 million in 2000, according to the Tax Policy Center, a Washington research group whose calculations on this issue are widely accepted.
The shrinking of the deduction for local taxes for millions more families in the next few years has the potential to cool price increases in thriving real estate markets, particularly in the Northeast and on the West Coast.
This is George W. Bush's secret weapon: because the AMT strikes Blue America more than Red it will bring Democrats to the tax reform table and in exchange for fixing it the President will be able to get much that he desires. Posted by Orrin Judd at February 21, 2005 8:36 AM
AMT is my major bone to pick with the president. Our taxes have gone up since he got through his tax cuts. I have to laugh when they talk of making the tax cuts permanent. I'd hate to see how much a tax increase would cost my household.
Posted by: Buttercup at February 21, 2005 10:10 AMBlue America seems to feel that high taxes are part of the greater good. Why would they want to change that?
Posted by: John J. Coupal at February 21, 2005 10:14 AMButtercup --
Your biggest bone to pick (most likely) ought to be with your state's government, which appears to be saddling you with above-average, "non-deductible" state income and property taxes. It is these guys who ought to be feeling the heat first.
Posted by: Moe from NC at February 21, 2005 10:32 AMMoe: In Florida we have no income tax. We do have sales tax at 7% and high property tax. Still doesn't change the fact that pre-tax cuts we payed less.
Posted by: Buttercup at February 21, 2005 11:11 AMOh, yeah, that is even after adding a child to our household.
Posted by: Buttercup at February 21, 2005 11:12 AMButtercup raises a good point, which is that, other factors being equal, the AMT penalizes people who have children. Hardly a good social policy, I would have thought. I would also think it tends on average to hurt the redder taxpayers in the bluer states.
Posted by: Random Lawyer at February 21, 2005 11:26 AMprop. 13 was a godsend; thank you howard jarvis (and the other guy whose name i can't recall) wherever you are. for those who aren't familiar with this little baby, it limits the property tax rates to 1.25% of the asessed property value -- at the time of purchase. so if you stay in one house, your overall tax bill does not go up. and best of all, the law can not be repealed by the legislature.
Posted by: cjm at February 21, 2005 1:21 PMBecause of AMT, it made sense to sell our stock holdings and pay off our house since we could no longer deduct the mortgage. Now AMT has minimal effect. Of course, too bad for all those companies that could use extra stock investment...
Posted by: Bret at February 21, 2005 1:47 PM