I'm a Pundit Too

Thursday, July 12, 2007

Alternative Minimum Tax Hike?

Shortly after the mid term elections last year the newly elected Democratic leadership promised the American taxpayers to “fix” the Alternative Minimum Tax. The AMT is a little known tax that was created almost 40 years ago to force 150 or so wealthy families to pay taxes. These families had not broken any law by not paying taxes, they simply used the tax code to avoid paying any income taxes. The AMT has grown over the 3 plus decades that it has been in existence to include over 3.8 million taxpayers in 2006. The major flaw with the AMT is that it does not take into account inflation or any tax cuts that have been implemented over the years.

I know what many are thinking right now. “This tax does not affect me. I am not in the top 1% or even the top 10% of wage earners.” The sad news is that within the next 3 years at least 26 million more taxpayers will be paying the AMT. The AMT does not take the place of your existing tax rate, it is an additional tax on top of your income tax. Estimates from the Congressional Budget Office, show that nearly every family with a total income of $100,000 will be paying $2000 more in taxes next year. Worse yet, many families with incomes between $75,000 and $100,000 will see a $1000 increase in taxes.

Some Senate Democrats have proposed a plan that would eliminate the AMT but raise taxes on those with more than $500,000 in income. Many politicians up for reelection next year are afraid to back such a plan, because of being seen as proponents of tax increases. Another plan is to simply postpone the effect of the AMT for 2 years, conveniently after the next election, and then work on tax increases to offset any loss of tax revenue from the AMT. Why does the government always expect the taxpayers to do with less money, but never even consider that they should do with less money?

Let’s not forget that the Republicans were in control of Congress for 12 years and failed to do anything about the AMT. They also failed to act on making Bush’s tax cuts, which by the way have caused an increase in tax revenues over the past 6 years. Whatever happened to Republicans being the party of tax cuts and fiscal responsibility? I am not saying the Democrats have been any better about spending since they have been in power. The political promises of last election season that earmark spending would be transparent, has yet to be accomplished. Both political parties have been severely lacking when it comes to tightening the purse strings in Washington. Isn’t any wonder why congressional approval ratings are at historic lows?

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