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AMT Talk: It Sure Is Stimulating

by Susannah Kopecky, published

$70 billion is the magic number being floated right now by Congressional members trying to push along the federal government stimulus package through both houses of Congress with bipartisan support. Those billions would go toward fixing a terribly flawed system known as the Alternative Minimum Tax. By Wednesday, Congressional leaders announced a middle ground, of a stimulus plan with a price tag of $789 billion rather than the previous bills costing upwards of $800 billion - $1 trillion.

Senator Harry Reid announced that he was "pleased.... that we've been able to bridge those differences" between the initial Senate and House-approved bills, which were slightly different in projects and monetary totals. The Senate approved an $838 billion bill by Tuesday evening, while the House of Representatives had previously approved a bill totaling $819 billion.

The House bill initially did not have the Alternative Minimum Tax, or AMT, assistance that the Senate included in its version of the bill. However, the Senate included a $70 billion earmark to "fix" the AMT for one year. Senator Grassley of Iowa supported the legislation. (According to some reports, there was as much as a ten percent difference in tax cuts between the bills, with 44 percent of the bill going toward tax cutting measures in the Senate bill, and 34 percent in the House bill.)

The Heritage Foundation describes the AMT as a "nefarious tax enacted... to prevent a small number of wealthy taxpayers from using legitimate deductions and credits to avoid paying taxes altogether," which has morphed and "expanded relentlessly because it was never indexed to inflation." The Heritage Foundation and others have estimated that millions of taxpayers would be paying upwards of $2,000 or up to $3,000 because of the AMT. The foundation estimates that in addition to the tens of millions currently paying the AMT this year, "approximately one in four income taxpayers will be subject to the AMT by 2013."

The AMT itself is a problematic issue. Created to protect certain levels of taxpayers, it has become a beast itself. It was dreamed up about 40 years ago, a "revolutionary" idea in and of itself: force all to pay taxes (despite ignoring the fact that those opposed to high taxes will always find ways to avoid them) by devising an "extra" tax system, to ensure that the majestically wealthy were forced to give their money to the state. (Fun, right?)

By 1970, it was put into reality as a way to ensure that certain very high income earners were not simply using flexible tax loopholes to avoid paying taxes. Unfortunately, the AMT is not indexed annually for inflation, which has had the unfortunate side effect of forcing middle class and lower class earners to be subject to AMT regulations. Additionally, exemptions and stock options can also be taxed under this system, no matter how wealthy (or not wealthy) the tax filer is. Official estimates in recent years have predicted gloomy scenarios: by 2010, if the AMT is not adjusted accordingly, nearly 20 percent of taxpayers may be subject to AMT whims, despite their lowered income levels.

On Wednesday during a press conference, Steny Hoyer, Majority Leader of the House, stated his belief that the one-year AMT patch will be kept in the final version of the stimulus package: "I don't think they're going to take that out," he said. However, this "fix" will only be slated to last through 2010. It has been thought that the only reason the $70 billion patch is even in place has nothing to do with stimulating the economy, but is only something to sweeten the deal for reluctant Republicans. It is being estimated that 24 million additional tax-paying families may be affected by the AMT this year, and by next year, with inflation still not being accounted for in the autonomous AMT tax, nearly 40 million additional taxpayers would be subject to the tax! Sadly, even those earning under $100,000 may be subject to this outdated and frivolous tax. This is a perfect example of an ideal, when put into practice, gone terribly wrong.

Take a look at the 2008 AMT tax form online, and see for yourself.(PDF)

Some of the biggest losers this time around include the unemployed and the education system, which both will receive less funding as a result of the $70 billion for the AMT fix. In California, the higher education system has already been a big loser in this year's budget, with the community colleges, California State University and University of California systems all facing funding cuts already. Additional federal taxes would be a deadly blow to the pockets of already over-taxed Californians, who already face the highest income tax in the entire nation. In addition to property taxes, even those earning lower salaries may be subject to the AMT (in addition to federal and state taxes), simply because of the rate of their property taxes (which are generally between 1-2% alone in Southern California counties.)

It's time to repeal the AMT, and repeal it now.

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