The Alternative Minumum Tax

AMT is Fine with Me The alternative minimum tax, created in the 1970’s, is a good idea at heart. With a bit of tweaking, it’s a fair way to make sure that those who make the most money pay their fair share of taxes. The AMT was created because there were loopholes in the tax code you could shove a whale through. The intent was to make sure that the top one percent or so of Americans could not hide their earnings and avoid their civic duty of paying taxes. It sets up a minimum amount, around 27 percent, that the richest of the rich had to pay even if they do their best to get out of it. Since the AMT was created, however, it has not been adjusted for inflation meaning that it is beginning to hit households that make around $100,000. And in the next few years, more and more households, some only making $75,000 per year will be hit with the ATM. Now, I firmly believe that taxes are a necessary part of any government. We, as citizens, expect a certain level of protection and services from the government – whether it is a military to protect from foreign invaders or a system of roads and highways to connect 3,000 miles of land from sea to shining sea. And those services cost money. And everyone has to pay their share. And in a progressive society, the poor pay very little, if any taxes and the rich have to pay a slightly higher percentage than the middle class. Some might say that to whom much is given, much is expected. I take a bit more practical approach. If our armed forces are protecting six of your houses and the navy is protecting 3 of your boats, it is reasonable that you have to bear a little bit more of the cost. The AMT was created because some of the uber-rich were trying to get out of paying their share. And while $100,000 is a good chunk of change, the AMT was not designed to affect the upper-middle class. So let’s get back to the point of the AMT. Let’s tweak the law so that the top percent or half a percent has an alternative minimum tax. And let the rest of Americans pay our fair share as well.

Get Rid of the AMT The Alternative Minimum Tax was designed to keep super rich folks from skipping out on their tax burden. It creates a whole new tax regime that must be calculated separately from the typical income tax. Thanks to Congressional forgetfulness the income brackets that are affected by this tax have not been raised appropriately over time, and by 2010 projections suggest that over 30 million households will be affected. Unless America is more prosperous than even I think it is, we do not have 30 million super rich households in the US. In fact, the income bracket hurt most by this tax is between $100.000 and $500,000. Granted, these are substantial incomes, but remember, this tax was designed to hit the rich folks from sneaking deductions in and not paying taxes. Instead, the tax is hammering households that have either two working parents who have good jobs or upper middle class families. Simply put, the AMT must be calculated separately from the income tax, if the AMT is higher, than you have to pay that number. The highest income tax bracket in the US is 35 percent, while the highest AMT bracket is 28 percent. Thus, people with extremely high incomes will end up paying more in regular income tax because most of their income falls into the 35 percent category. This means they miss out on the joy of paying the AMT. The AMT is also notoriously complex, it disallows many deductions and income exemptions that the income tax allows. For instance, interest on nongovernmental purpose bonds issued after August 7th, 1986 that is excludible from gross income for regular tax purposes must be included for the AMT, companies must disallow deductions from amortizations of pollution control facilities, and individuals impacted by the AMT lose their deduction for having a hybrid automobile, Everyone agrees that the AMT must be reformed, but the question is how. My question is why. Why bother? Get rid of the thing. It is cumbersome, expensive to administer, and does not even affect its target tax market. The nation spends billions to properly file their income tax returns, and there is no reason to add another burden to our citizens. If you disagree with me, then try a simple experiment…get married, have 2.3 kids, work hard, make a lot of money (this is key – broke people do not have to worry much with taxes), love your spouse, try to spend time with your kids so they turn out okay, and then try to do your taxes (AMT or otherwise) yourself. This is what the bulk of productive households in the US face every year and then bureaucrats and think-tank do-gooders who can not relate tell them that taxes are not really burdensome to file. Get real, and get rid of the AMT!