The AMT is DOA

By Uzo Ometu

The Alternative Minimum Tax has been sticking it to American taxpayers for years, but on December 19, 2007, Congress finally decided to do something about it.

The House of Representatives voted on a measure that would relieve 21 million tax payers of their responsibility to the Alternative Minimum Tax (AMT) for the 2007 tax year. In fact, they voted for this bill emphatically, with a 352-64 outcome.

The AMT was created in 1969 in order to prevent the “rich” Americans who were paying virtually no taxes because they were using a plethora of deductions and loopholes to get around paying income tax. The AMT is a form of back up tax enforcement that requires people of specific income brackets (those who are “rich”) to pay a minimum tax should their original tax filing result in owed-taxes that are below the AMT. Thus, if a taxpayer does his or her taxes in such a way that they end up owing no income taxes (or taxes below the AMT), then they have to pay the AMT which taxes at a rate of either 26 or 28 percent.

The AMT has been obliterating the incomes of millions of middle-Americans since 1986 when President Ronald Reagan and Congress elected to make some major changes in the tax system that would result in the average person’s deductions being effectively negated by the AMT. Also, since the AMT’s induction in 1969, there have been no changes to it that have accounted for inflation, thus creating all sorts of problems in using it in an economy that is almost 40 years removed from the one the AMT was created under. Because of those factors, Americans who aren’t rich and who fall into the middle and upper-middle class economic categories have been paying more than their fair share of taxes.

Had Congress not enacted this measure before the tax year was over, approximately 21 million Americans would have paid an average of $2,000 or more on their taxes. Some of these people make as little as $30,000 to $50,000 a year, and an additional $2,000 in owed tax money could represent as much as 6% of their income.

However, there is the question of how on Earth this $2,000 from 21 million people is going to be replaced? This is a question that the 64 people who voted in opposition of this measure were trying to raise via their votes. That’s over $42 billion in potential tax earnings that the government is essentially rejecting, and there is no provision in the measure voted on today that will replace that amount of money. As if our national deficit wasn’t big enough, now we’re instituting provisions without regard for how we are going to pay for them.

It was a good effort by Congress, and it was the right thing to do. But it would help if the nation’s most empowered politicians could demonstrate a little bit of skill and give me more than just good intentions.

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