$70 billion is the magic number being floated right now by Congressional memberstrying to push along the federal government stimulus package throughboth houses of Congress with bipartisan support. Those billions wouldgo toward fixing a terribly flawed system known as the AlternativeMinimum Tax. By Wednesday, Congressional leaders announced a middleground, of a stimulus plan with a price tag of $789 billionrather than the previous bills costing upwards of $800 billion -$1 trillion.
Senator Harry Reidannounced that he was "pleased.... that we've beenable to bridge those differences" between the initial Senateand House-approved bills, which were slightly different in projectsand monetary totals. The Senate approved an $838 billion bill byTuesday evening, while the House of Representatives had previouslyapproved a bill totaling $819 billion.
The House billinitially 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 thelegislation. (According to some reports, there was as much as a tenpercent difference in tax cuts between the bills, with 44 percent ofthe bill going toward tax cutting measures in the Senate bill, and34 percent in the House bill.)
The Heritage Foundationdescribes the AMT as a "nefarious tax enacted... toprevent a small number of wealthy taxpayers from using legitimatedeductions and credits to avoid paying taxes altogether," whichhas morphed and "expanded relentlessly because it was neverindexed to inflation." The Heritage Foundation and others haveestimated that millions of taxpayers would be paying upwards of$2,000 or up to $3,000 because of the AMT. The foundation estimatesthat in addition to the tens of millions currently paying the AMTthis year, "approximately one in four income taxpayers will besubject to the AMT by 2013."
The AMT itself is aproblematic issue. Created to protect certain levels of taxpayers, ithas become a beast itself. It was dreamed up about 40 years ago, a"revolutionary" idea in and of itself: force all to paytaxes (despite ignoring the fact that those opposed to high taxeswill always find ways to avoid them) by devising an "extra"tax system, to ensure that the majestically wealthy were forced togive their money to the state. (Fun, right?)
By 1970, it was put intoreality as a way to ensure that certain very high income earners werenot simply using flexible tax loopholes to avoid paying taxes.Unfortunately, the AMT is not indexed annually for inflation, whichhas had the unfortunate side effect of forcing middle class and lowerclass earners to be subject to AMT regulations. Additionally,exemptions and stock options can also be taxed under this system, nomatter how wealthy (or not wealthy) the tax filer is. Officialestimates in recent years have predicted gloomy scenarios: by 2010,if the AMT is not adjusted accordingly, nearly 20 percent oftaxpayers may be subject to AMT whims, despite their lowered incomelevels.
On Wednesday during apress conference, Steny Hoyer, Majority Leader of the House, stated his belief that the one-year AMT patch willbe kept in the final version of the stimulus package: "I don'tthink they're going to take that out," he said.However, this "fix" will only be slated to last through2010. It has been thought that the only reason the $70 billionpatch is even in place has nothing to do with stimulating theeconomy, but is only something to sweeten the deal for reluctantRepublicans. It is being estimated that 24 million additionaltax-paying families may be affected by the AMT this year, and by nextyear, with inflation still not being accounted for in the autonomousAMT tax, nearly 40 million additional taxpayers would be subject tothe tax! Sadly, even those earning under $100,000 may be subject tothis outdated and frivolous tax. This is a perfect example of anideal, when put into practice, gone terribly wrong.
Take a lookat the 2008 AMT tax form online, and see for yourself.(PDF)
Some of the biggestlosers this time around include the unemployed and the educationsystem, which both will receive less funding as a result of the $70billion for the AMT fix. In California, the higher education systemhas already been a big loser in this year's budget, with thecommunity colleges, California State University and University ofCalifornia systems all facing funding cuts already. Additionalfederal taxes would be a deadly blow to the pockets of alreadyover-taxed Californians, who already face the highest income tax inthe entire nation. In addition to property taxes, even those earning lower salariesmay be subject to the AMT (in addition to federal and state taxes),simply because of the rate of their property taxes (which aregenerally between 1-2% alone in Southern California counties.)
It's time to repeal the AMT, andrepeal it now.