The AMT Thread

[JP5]

I can't help but find it a bit funny that this AMT enacted in 1969 (by Democrats) was designed to get 155 super-rich people. Can you imagine??? Designing a tax law just to "get 155 people???" Now, it's come back to bit them in the royal butt......ensnaring the middle class. It's called "unintended consequences." Here's the way it went:

"During Congressional hearings in the late 1960s, then Treasury Undersecretary Joseph Barr famously disclosed that 155 wealthy taxpayers -people earning more than $200 thousand, equivalent to more than $1.1 million in current dollars - paid no federal income taxes because they were too cleaver utilizing the various exemptions, deductions and credits in our Byzantine tax code. (We had a lot more exemptions then too) In that more-impressionable era, this disclosure caused a sensation. In 1969, for example, more letters to Congress complained about the 155 rich non-taxpayers than complained about the ongoing Vietnamese war. (Jealousy and envy will usually come back to bit you in the butt!)

Predictably, the Congresspersons were shocked, simply shocked that this could have happened. They outdid one another in their zeal to condemn this outrage, enacting a "minimum tax" in 1969 which set the pattern for what has now become AMT.

At its inception as a "minimum tax" the drafter's intention was solely political and psychological. (It was about "getting the super rich, or they thought) There was little additional revenue to be gained, since the proportion of taxpayers who legally avoided paying any federal income tax measured in thousandths of one percent of the total. As a result, the minimum tax instituted a second, parallel tax calculation which disallowed the exemptions, deductions and credits most often utilized by the embarrassingly-shrewd rich, thereby forcing them to pay some tax, at least. The specific disallowed tax "preference" items were also thought to be infrequently employed by middle-class taxpayers, thus hopefully minimizing collateral damage."
http://bham.redstate.com/story/2006/4/17/161151/839

And this is why Democrats do NOT want to do anything about it....even though they'll tell you they do. It would essentially be another tax cut:

"Before discussing how AMT ran amok, consider another question: why not just junk AMT, rather than attempting for the umpteenth time to fix it? The answer is that although AMT originated as a political demonstration of "equity" and "fairness" without real revenue significance, it has morphed into a meaningful revenue producer for the Treasury. AMT is projected to bring in $660 billion tax revenue over the next ten years, reaching $105 billion in 2010 alone. In an era of tight federal budgets, we're now dependent on AMT's cash flow."

But again, I find myself chuckling over this Democrat-imposed situation. Because the 1969 Democrat set out to get those 155 super rich guys.....and have shot themselves in the royal foot. Why? Because AMT hits the northeast and liberal states more than the southern, more conservative states. Because they pay high state and local taxes and have higher property taxes, the AMT effects them the most. Texas, Florida and Wyoming don't have state and local income taxes. States like Massachusetts, New York, California, Oregon, Minnesota and much of the East Coast have extremely high state and local taxes and high property taxes.

Now....having said all that and had my fun......Pres. Bush and the Republican congress have raised the exemptions so that the AMT ensnares less people. But if they do away with it altogether, it will raise the deficit even more....and WHO will get blamed for that? Why should the Republicans get blamed for something STUPID the Democrats did almost 40 years ago? And I don't see the Dems rushing out to say "abolish the AMT" either. Probably because they don't want to highlight the fact it was Democrats who thought it up in the first place.

Comments?

[raytri]

Originally Posted by JP5";p=&quot

"Before discussing how AMT ran amok, consider another question: why not just junk AMT, rather than attempting for the umpteenth time to fix it? The answer is that although AMT originated as a political demonstration of "equity" and "fairness" without real revenue significance, it has morphed into a meaningful revenue producer for the Treasury. AMT is projected to bring in $660 billion tax revenue over the next ten years, reaching $105 billion in 2010 alone. In an era of tight federal budgets, we're now dependent on AMT's cash flow."

This paragraph is true only if you consider Bush's previous tax cuts sacrosanct. Maybe as part of his $1.5 trillion in cuts he should have fixed the AMT. Now we have Republican bloggers arguing that it would be impossible. Why? Just roll back some of Bush's previous cuts to pay for the fix.

Heck, the estate tax alone brings in more than $70 billion a year. I vote that instead of eliminating the estate tax, we fix AMT. That solves both problems: we still make sure the rich pay taxes (even if only when they die), and we get rid of the broken AMT system.