AMT Hitting the Middle Class

The per
capita income in California
was $33,749 in 2005, according to U.S. Census Bureau Data.

If the
alternative minimum tax fix that expired in December isn’t renewed, taxpayers
making as little as $30,000 to $50,000 could be hit by a levy aimed 40 years
ago at making sure the creative and well-heeled pay up, according to the Tax
Policy Center
.

Yet there
are people – important people, such as the No. 3 Democrat in the U.S. House of
Representatives – who insist on painting the AMT fix the Senate added to the
stimulus bill as a bailout for the wealthy.

“We
need to get people back to work,” South Carolina Rep. Jim Clyburn told The
Washington Post
last month
. “And you can’t get people back to work
giving rich people tax cuts.”

He’s
wrong on two counts.

First,
it’s not a tax cut. It’s a change needed to keep bills from going up an average
of $2,300 a year because Congress forgot when it created the tax in 1969 to
make the AMT adjust automatically for inflation every year. On top of that,
most AMT victims face underpayment.

If the
patch isn’t approved, the number of people AMT would affect would skyrocket
from 4 million in 2008 to 31 million this year, the
Tax Policy Center says
. The AMT exemption would fall from $69,500 for
married filing jointly and $34,975 for single filers to $45,000 for marrieds
and $22,500 for singles.

With
exemption levels that low, it’s easy to see a scenario where someone is laid
off this year but still manages to earn enough to be subject to AMT when filing
time rolls around in 2010. That would be an incredibly cruel joke in California, which is third in the nation in
unemployment
and first in
foreclosures
.

It looks
like a tax cut on paper, though, because every year revenue projections are
based on how much the AMT would bring in if the patch weren’t reapproved.

Secondly,
AMT hits far more people than the originally intended wealthy.

Maybe
$30,000 a year is rich in South
Carolina – per capita income $26,132. But it’s not in
the rest of the country – per capita income $31,632.

And it’s
even farther from rich in the states where AMT hits hardest – New
Jersey, New York, Connecticut,
California and the District
of Columbia, according to a different Tax
Policy Center analysis
.

That’s
because it costs more to live in those states. An analysis by the Missouri
Economic and Research Center
shows that when it comes to affordability, the
District of Columbia ranks 50th; California, 49; New Jersey, 48; Connecticut,
46; and New York 44th.

AMT also
hits families hard. Left unpatched, AMT would apply to 40 percent of married
couples with two children and 45 percent with three or more starting with this
tax year, Tax
Policy Center says
. That’s because there are no personal exemptions and no
marriage bonus under AMT.

A
whopping 61 percent of families with incomes between $75,000 and $100,000 would
face AMT this year, according to that same analysis. While that’s above California’s median
household income of $59,948, that income level’s not wealthy by a long shot.
Particularly not in a state where the cost of living is 29 percent higher than
the national average.

It’s easy
to see how people such as Clyburn get confused. Yes, AMT does overwhelmingly
benefit
the top 20 percent of taxpayers. Every year, though, it’s more of a
threat to the middle class.

Some
questioned not the need for the AMT patch, but the need to include it in the
stimulus bill.

“It’s
about 9 percent of the whole (stimulus) bill, which we were going to do
later this year in a tax bill,” Sen. Tom Harkin told
The New York Times
. “Why is it in there? It has nothing to do with
stimulus. It has nothing to do with recovery. This makes no sense
whatsoever.”

He’s
probably right that Congress would take care of the patch later. But can he
guarantee it?

Californians
will see little help from other Republican-backed additions to the stimulus
bill. Offering tax credits to homebuyers will do little to spur construction
here, where inventory is more bloated than it is in the
rest of the country
and builders are simply
walking away
from developments.

Income
tax refunds are being delayed and the sales tax could
go up a penny.

Relief
guaranteed now is welcome.