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“Alternative to burdensome tax”
By the end of the decade, an obscure tax feature designed to catch a handful of super-wealthy Americans not paying any taxes is expected to ensnare about a third of all taxpayers - many of them middle income.
Unlike other provisions of the tax code, the alternative minimum tax is not indexed for inflation. Consequently, the 155 taxpayers it targeted in 1969 when it was enacted, have mushroomed to 3 million taxpayers. Unless Congress acts, 9 million more taxpayers will get hit with its significantly higher taxes in 2005 - a figure that will soar to about 36 million by 2010. Included are married couples with annual incomes well under $100,000.
Among the AMT's consequences are:
- Higher taxes - nearly $3,000 extra for those earning between $100,000 and $200,000.
- Forcing taxpayers to figure taxes twice - once the standard way, and again using Form 6251, which has 65 lines and gives headaches even to tax professionals.
- Turning a progressive tax code on its head by taxing those with lower incomes at higher rates than wealthier taxpayers.
- Taxing money not collected, such as a woman who won a $1.5 million lawsuit but wound up owing the government $475,000 in taxes because of the AMT - far more than she pocketed after paying legal expenses.
- Hitting taxpayers with children, high medical expenses, employee stock options or steep local or state taxes especially hard.
- Increasing the marriage tax penalty by making married couples 20 times as likely to face higher AMT rates as singles.
The longer Congress waits to fix the problem, the more dependent the government becomes on revenue collected by the AMT. According to the Congressional Budget Office, repealing it would cost the government nearly $1 trillion in lost revenue over the next decade. Indexing it to inflation would cost nearly half that.
Dick Armey, former House majority leader and now chairman of Citizens for a Sound Economy, says the AMT is "growing like cancer," even as truly wealthy taxpayers have figured out new ways to avoid taxes.
At the very least, the alternative minimum tax needs a serious and permanent overall to limit its reach.