December 6, 2006

KEEP THE AMT, DITCH THE REST OF THE CODE:

The AMT Mess (Gene Laber, 12/05/06, Sun Herald)

The AMT came in response to the revelation in 1969 that 155 taxpayers with incomes in excess of $200,000 paid no income tax in 1966. Adjusted for inflation, the $200,000 of the late 1960s would amount to just over $1 million today. Those households used legal write-off and shelter provisions of the tax code to reduce their taxes. Nonetheless, Congress quickly and clumsily moved to undo what it initially created by writing tax breaks into the law.

The AMT is extraordinarily complex, but its essence is that taxpayers must calculate an alternative tax that excludes the benefits of personal exemptions and many deductions, such as state and local taxes. Then they pay the higher of the alternative or the regular tax. Under the alternative tax calculation, a flat exemption replaces personal exemptions and many deductions, and income less the flat exemption is taxed at alternative rates starting at 26 percent. The flat exemption has not been indexed for inflation, so more and more taxpayers are becoming subject to a higher tax burden under the AMT as inflation increases incomes.

Estimates prepared by researchers at the Brookings Institution and the Urban Institute say that, in 2010, one-third of all taxpayers will be subject to the AMT, and nearly 80 percent of households in the $75,000 to $100,000 income range will face higher taxes because of the AMT. In the $100,000 - $500,000 income range, 95 percent of households will pay the AMT.


Lower the rate to around 18% and apply it to everyone.

Posted by Orrin Judd at December 6, 2006 7:49 AM
Comments

The AMT is extraordinarily complex

Untrue, really. It's quite obviously less complex than the basic income tax system. The complexity comes in calculating taxes twice, and in finding that certain decisions done for tax purposes were not actually the right ones to make.

Posted by: John Thacker at December 6, 2006 8:11 AM

John:

And any tax return software makes it even easier.

Posted by: Rick T. at December 6, 2006 8:28 AM

The AMT is complex only because resolving the 'problem' of the middle class having to use it requires either accepting a general tax increase or eliminating it altogether (and accepting less revenue). Congress doesn't like either answer, no matter which party is in charge.

The GOP can certainly ride this horse in 2008, but McCain doesn't have a lot of credibility on tax issues, now does he? Will he give a "big" speech in the spring to atone for past sins and make this his issue (i.e., before Rudy jumps all over it)?

Posted by: jim hamlen at December 6, 2006 9:38 AM

By his willingness to "buck" the Party McCain has the most credibility of anyone on every issue. That's the beauty of pretending to be a maverick. Giuliani has never reduced your taxes. McCain has.

Posted by: oj at December 6, 2006 10:02 AM

Doesn't the Left usually like to impose their program in little bits that no one sees coming until its too late?

eliminating it altogether

Reduce the AMT rate to something that the "soccer moms" can live with and we'll have that long sought for "Flat Tax", and enacted "incrementally." Gotta love those "slippery slopes" when they work with the Law of Unintended Consequences.

Posted by: Raoul Ortega at December 6, 2006 10:12 AM

For some reason, I can't post this to the post below, so:

--The federal government already spends about $71 billion a year on higher education, up from about zero 50 years ago.--

And one wonders why college costs so much? There's at least 1 study out there, even tho correlation is not causation.

Posted by: Sandy P at December 6, 2006 10:31 AM
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