AMT Could Mean Higher Taxes for Millions of Families

Because Congress has not acted to extend the exemptions on the Alternative Minimum Tax (AMT) millions of middle to upper-middle class Americans now face the possibility of having to pay thousands of dollars in additional federal income taxes on their 2007 tax returns. With that possibility looming it could well mean that this will be a Christmas that is less merry than the nation’s retailers and charitable organizations had hoped as millions of taxpayers might hold back on their Christmas spending and year-end giving.

As it now stands even middle-income families could face paying higher income taxes because the Democratic leadership in Congress has not passed a bill to fix or patch the AMT by raising the exemption levels at least through the 2007 tax year.

Without a fix as many as 25 million Americans could be hit with a $50 billion tax increase for a tax they should not have to pay and that would be just another windfall for the spending addicted liberals in Congress. In Alabama up to 112000 families could be faced with paying thousands of dollars in additional income taxes that will be due on April 15th.

The AMT was created by Congress in 1969 as a way to close a loophole in the federal income tax law.  At that time there were 155 very wealthy people including 21 millionaires who paid no federal income tax because of the number and size of deductions they were reporting on their tax returns.  Congress devised the AMT as a scheme to close the deduction loopholes for those people and force them to pay income taxes.

The problem with the scheme is that it was never indexed for inflation and even though Congress has adjusted it 14 times since 1971 the threshold at which the AMT kicks in has dropped lower and lower to the point that it now threatens middle-income families especially families with children under the age of 17. And according to a New York Times article the tax could impact some Americans earning $50000 or less.

The debate over fixing the AMT illustrates the stark differences between Democrats who believe higher revenues can only be attained by raising taxes and Republicans who believe tax cuts increase economic growth that results in higher revenue. If the last few years are any indication neither political party has figured out that cutting or controlling spending is of paramount importance to fiscal discipline and balancing the budget.

In November the Democrats passed a bill to fix the AMT but the bill included a $50 billion tax increase to offset the $50 billion in revenue that they say is part of their revenue projections for next year.  That doesn’t quite fly. Since taking control of Congress the Democrats promised they would fix the AMT which means they never should have counted on the potential windfall.  Because they are attempting to raise taxes under the guise of offsetting lost revenue the bill is being filibustered by Republicans in the Senate; Democrats do not have enough votes to break the filibuster. Moreover President Bush has made it clear that he will veto the bill if the Democrats do manage to pass it.

If the Democrat majority in Congress does nothing the impact of the AMT will continue to spread to more and more middle-income families. The Treasury Department estimates that the AMT will impact 30 million taxpayers by 2010 and up to 60 million in ten years. By 2016 it will cost taxpayers over $260 billion in additional taxes with the hardest hit being families with children and taxpayers living in high tax states.

The simple solution is a less than two percent reduction in spending not a massive economy-weakening tax increase. The entire AMT fix could be offset by cutting 1.67 percent from the federal budget. Given the billions of dollars of wasteful pork spending and duplication of services and programs that we have witnessed over the last few years it’s hard to imagine that members of Congress cannot find a way to cut 1.67 percent out of the federal budget. That would not only fix the AMT problem it would be a great first step toward fiscal responsibility for Congress.