Finding a Solution to a Continually Taxing Problem

One of Benjamin Franklin’s most famous quotes was “In this world nothing is certain but death and taxes.”  While the first part of that quote holds true Congress has somehow managed to create uncertainty within the tax code. 

Through successions of “minor additions” and “annual updates” tax law has become so complicated that according to the Government Accountability Office 61 of 2006 tax returns were turned over to professionals to prepare. 

Most Americans only become aware of the intricacies of the code when they find themselves having to pay some new tax they have never heard of before.  The Alternative Minimum Tax or AMT is a prime example of a little-known and seldom talked about area of tax law that is receiving increased attention as more and more Americans find themselves subject to it.

Time was the AMT was something that affected only the wealthy.  Unfortunately as many are realizing that is no longer the case.  For the past several years many in Congress have become concerned with the growing problem posed by the Alternative Minimum Tax.

The original purpose of the AMT was to ensure that no individual with higher income could use tax benefits to reduce his or her tax liability below a certain point.  However the AMT is not indexed for inflation and this factor combined with the recent reductions in the regular income tax has greatly expanded the potential impact of the AMT. 

Unless a change to the law is made more and more individuals will be subject to the AMT rather than the regular tax. According to one recent study in 2001 2.4 million individual income tax returns (1.8 of the total) contained an AMT liability; in 2004 an estimated 3.5 million returns (2.6) had an AMT liability. In 2010 an estimated 37.1 million returns (25.6) will owe the AMT. 

Over the past several years the Republican-controlled Congress shielded all but a handful of Americans from its effects with a series of temporary "patches."  Without a “patch” for 2007 23 million taxpayers would have been subject to the AMT for their 2007 income and face an average tax increase of $2000. 

To help individuals prepare for their tax payments the AMT “patch” should have been passed by the middle of last year.  Unfortunately Democrat House leadership consistently refused to let an AMT patch or reform for that matter come to the floor unless it included burdensome tax increases in other areas.  Twice the Democrats tried to push through tax increases under the guise of AMT reform and twice they were stopped by Republicans. 

Democrats claimed that their budget rules would not let them pass any relief without offsetting the theoretical revenue loss that would come from pushing back the AMT.  I argue that this is not a tax cut that needs to be offset but a fix for an unforeseen flaw in a tax law that was passed almost forty years ago.  If the majority absolutely insists on offsetting the AMT they should do so by finding places to reduce spending not by raising taxes. 

It wasn’t until the final days of the legislative year that Speaker Pelosi allowed a “no strings attached” one-year AMT patch through the House.  Thanks to that patch millions of Americans will avoid the unintended consequences of a poorly written law.  The events of this year do however emphasize the need for permanent AMT reform. 

As households begin the annual chore of planning the family budget it should be clear to Congress that we cannot continue to keep the American people guessing whether they will receive a reprieve each year on the AMT.  It is simply unfair for families to plan their financial future without knowing one of the most important bits of information.  Americans deserve a permanent solution and I hope the rest of Congress will agree with me and make it a reality.