March 22, 2005
WHY W WILL WIN:
ALTERNATIVE MINIMUM TAX HITTING BLUE STATES THE HARDEST (NCPA, March 21, 2005)
The Alternative Minimum Tax (AMT) once targeted the wealthiest of families but is now hitting the upper middle-class in states that vote Democrat, says Peronet Despeignes (Fortune).The AMT works by imposing a flat 26 percent tax rate on the first $175,000 of income and 28 percent after that. By law, taxpayers pay either their regular taxes or the AMT, whichever is greater. But because it is not adjusted for inflation, the tax has begun to target the upper middle-class, particularly those in Democratic or “blue” states:
* Already the tax has ensnared more than one million Americans and could hit a total of 30 million taxpayers by 2010.
* According to the Urban Institute, the 11 states that already have the greatest share of taxpayers paying the AMT are blue states; toping the list is New York (23.1 percent of taxpayers), District of Columbia (15.8 percent) and New Jersey and California (both 15.6 percent).
* Meanwhile, the bottom 10 states -- those that have the fewest percentage of taxpayers paying the AMT -- are red states; for instance, only 1 percent of taxpayers in Montana have to pay the AMT.
The need to fix this will force Democrats to accept some kind of tax reform. Posted by Orrin Judd at March 22, 2005 12:15 PM
They want to pay higher taxes, now they can. After all, it is for "the children" and "the poor."
Posted by: Sandy P at March 22, 2005 12:46 PMHmmm... keep piling exemptions on the regular income tax, cut the AMT rate, and suddenly you've pushed a flat tax in the back door!
Posted by: Mike Earl at March 22, 2005 12:55 PMLower the floor on the AMT to, say, $60,000, and voila, there is your flat tax. Add in a small VAT, and you have pure and simple tax reform.
Posted by: Dan at March 22, 2005 1:53 PM1 million Americans is roughly 0.3%.of the population. If Republicans actually took the lead , it would be a slam dunk for Democrats claiming Republicans want tax relief for the wealthy.
"Here is a tax cut that ONLY helps the wealthiest one percent - strike that, it's the weathliest one third of one percent."
I am all for reforming the AMT, but Republicans would be smart to ignore the problem for awhile.
Posted by: Kevin Colwell at March 22, 2005 4:35 PMJust another reason to scrap the income tax altogether and replace it with a sales tax or VAT.
Posted by: bart at March 22, 2005 4:41 PMOn average, AMT tends to hit the Redder taxpayers in the Blue states, though. The regular, non-AMT income tax favors marriage (through more beneficial rate brackets), child-rearing (through exemptions), home ownership (mortgage interest deduction), donating money to charity (deduction) and saving for retirement (deduction). AMT takes most of those tax benefits away. One of my junior associates (a married guy with two kids and a mortgage) paid $3000 in AMT last year and that trend is going to continue.
Think of two newly-minted lawyers (or plumbers, anybody with a $75,000+ paycheck in his or her 20s). One marries, has four children, buys a house in the suburbs, joins a church and maxes out his 401(k) every year. The other lives in a rented apartment downtown, has a series of short-term paramours, no kids, and spends his extra cash on eating out, entertainment, travel, etc., rather than saving or giving to charity. AMT is much more likely to hit the first than the second, and the effect is so strong that by 2010 (according to the Tax Policy Institute study last year) something like 90% of the first and 5% of the second are going to pay AMT. That's unwise policy, but it's hard to see how it's any skin off the Democratic Party's nose.
Posted by: Random Lawyer at March 22, 2005 6:03 PM