Alternative minimum tax snares too many; it should be repealed

Posted: Thursday, May 13, 2004

Government actions meant for a single group of people sometimes can affect many others.

Prime example: the alternative minimum tax. Intended to punish the rich, it is nearly to the point where it can snare just about any taxpayer.

The tax started in 1969 when Treasury Secretary Joseph W. Barr complained that 155 wealthy taxpayers had paid no federal income taxes in 1967 because of what he called legal tax loopholes.

Congress responded with the Tax Reform Act of 1969, which created the alternative minimum tax to punish those using legal tax credits, deductions and exclusions to avoid paying taxes.

Congress, of course, had enacted each of those "loopholes," presumably to make the law fairer.

But, over time, the AMT -- without income thresholds tied to inflation or real income growth -- has expanded to include people who are not rich. As a result, the AMT is becoming a curse on the middle class.

Under the AMT, taxpayers figure their taxes under both the ordinary income tax rates and again under the AMT. The amount paid in taxes is the method that yields the highest figure.

The AMT now can hit anyone with six-figure incomes and soon will catch families with incomes dipping as low as $50,000. The tax snagged more than 3 million taxpayers this year with 8 million to 12 million people expected to pay the tax next year.

At its current rate of growth, the AMT will generate more money than the regular income tax by 2013, the Treasury Department says.

Given the creeping nature of the tax, Congress is pondering action to slow its expansion.

The House last week passed legislation that would provide a one-year reprieve from the tax for about 9 million taxpayers. The legislation would hold the line for overall taxpayers at about the same numbers as this year.

The change would result in about $17.8 billion in savings for taxpayers. Backers of the legislation say it would give the Treasury Department time to come up with a long-term solution for the tax.

A defeated Democrat alternative to the House legislation sought to create a blanket exemption for people with adjusted gross incomes of $125,000 or less and couples with incomes up to $250,000. It suggested paying for the fix by closing some tax loopholes that now exist -- if, indeed, there are any.

The Senate also is expected to approve some measure that would scale back the tax. These are steps in the right direction, but the law should be repealed.

-- Florida Times-Union, Jacksonville

May 12

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