Democrat calls for outdated tax to be axed

[Judi Lynn]

Democrat calls for outdated tax to be axed
By Francesco Guerrera in New York

Published: November 28 2006 22:57 | Last updated: November 28 2006 22:57

The new Democrat-controlled Congress should abolish an outdated tax that could condemn up to 23m Americans to pay a total $1,000bn next year, according to the incoming head of a powerful congressional committee.

Charles Rangel, the New York Democratic congressman who is expected to become chairman of the tax-writing ways and means committee in the House of Representatives, said scrapping the alternative minimum tax (AMT) was a top priority.

Mr Rangel’s position, presented at a meeting with New York business leaders on Tuesday, is more radical than other senior Democrats, including the incoming House Speaker Nancy Pelosi, who have talked about extending a one-year relief from AMT for middle-income taxpayers.

Introduced in 1969 to ensure that most upper-income households paid at least some tax, AMT has become emblematic of the inefficiencies plaguing the US tax collection system.

The problems stem largely from a technical mistake: the tax was not indexed for inflation – an oversight that meant that every year more and more middle-income citizens ended up paying it. It will be levied on some 3.5m people this year and the number could rise to more than 23m in 2007.
(snip/...)

http://www.ft.com/cms/s/e0621c74-7f20-11db-b193-0000779e2340,_i_rssPage=6700d4e4-6714-11da-a650-0000779e2340.html

[truthisfreedom]

1. scrap it.

i only say this, of course, because i'll be subject to it.

[w4rma]

37. No. Fix it. (nt)

[Warpy]

2. FIX it

It's not too late to put an income floor on the sucker and to index that income floor to inflation.

Scrapping it would mean that plutocrats and corporations who pay little tax would be able, through creative accounting, to pay NO TAX.

That, to me, is a very, very bad idea.

[bklyncowgirl]

11. I agree. There's nothing wrong with the AMT as long as it hits the people it was meant to hit.

Fix it so that it kicks in at some level that only the rich are effected by it. That was the idea in the first place.

[papau]

14. I agree - minor changes in the deductible and the list of deductions not

allowed and just about all the $23 million that "might" be paying under the Alt Min will never have to pay anything other than a tax using the FIT tax rate structure.

[aquart]

28. Anyone think it was deliberately defective?

I mean, soooooooooooooooooooooooooooooo many opportunities to fix it. Yet nothing was done.

[slackmaster]

36. Never attribute to evil intent that which can be explained as simple stupidity

Congress has a long history of being short-sighted about legislation.

[hughee99]

3. Am I reading this right?

$1,000bn is 1 TRILLION dollars, correct? Weren't total federal tax revenues around 2 Trillion in 2004 (the last year I could find numbers for)? Is the AMT really such a huge percentage of Federal Tax revenue?

[papau]

17. The $1 trillion of lost revenue/increased deficit/increased Nat'l Debt if repeal is

passed is calculated over 10 years.

But it is still a lot of money, almost all of which is money no longer paid by the rich.

Charlie Rangel has his head up his a...

[hughee99]

22. From the OP

"The new Democrat-controlled Congress should abolish an outdated tax that could condemn up to 23m Americans to pay a total $1,000bn next year."

It sounds to me like this means that this tax could end up causing 23 million Americans to pay a total of $1 trillion next year. I don't see how I'm misunderstanding it unless this statement is not accurate.

[papau]

24. The statement is not accurate - the alt min is projected to affect 23 million in 10 years - almost

all of these folks will be affect for rather minor dollars - making a fix toremove them from the Alt Min system rather cheap in terms of lost revenue.

The $1 trillion is the size of the gift to the very rich who over-work their lawyers, accountants, advisors so as to acquire tax deductions to reduce their FIT tax to near zero.

The idea of someone making 10 million a year and paying no tax because of ourchased deductions sucked in 1969 and still sucks today. The alt min solution to this problem is still needed today.

But a fix is needed to increase the size of the special deduction under the Alt Min and to remove it's attack on harmless middleclass deductions like the child deduction credits and the like - so as to return the number of folks hit by the tax to 1 to 2 million - not the projected 23 million in 10 years.

[hughee99]

26. Thank you...

while I'm vaguely familiar with the workings of the AMT, those numbers seemed impossible for me to believe.

[TankLV]

33. Fucking assholes (not you): it's DemocratIC - DEMOCRATIC controlled congress...

fucking repuke media whores...

but I repeat myself...

[China_cat]

4. I'd love to see that one go.

Due to it my husband is making 1/2 what he was 5 years ago and we are paying $2500 to $3000 ABOVE what is withheld from his paycheck (calculated with zero dependents).

It's just another way to screw the middle class out of anything they might try to save.

[papau]

15. You can go adjust your withholding - no refund is not a function of being under

the alt min

[Jackpine Radical]

20. That's not what she's trying to say.

She's saying that the AMT is zapping their income big-time, that it's hitting them much harder than the withholding tables predict. The issue is not that too little is being withheld, but that too much is being taken.

[papau]

23. the withholding tables underwithhold - too much is not being taken - there is no "big time" tax

that is hitting her.

There is a large deductible second tax system that has a flat rate of 25% but is not used unless it is higher than the FIT tax - and it is never higher than the FIT for those with under 100,000 income - like the poster - unless they have many children or very wierd tax deductions that would produce near zero tax on the FIT - and those wierd tax deductions are almost always deductions you worked hard with your lawyer to get but he forgot to tell you that you couldn't use them.

Look at a few Alt Min returns for the under 100,000 gross crowd - and you will find no big deal in terms of a "big time" tax

Alt min repeal is a need of the rich only - a simple fix workd for the rest of us.

Indeed those calling fore repeal are usually spinning for the right wing GOP - making Rangel's comment suspect as to his motivation. = is he a sell out - what has he been promised?

[China_cat]

27. I'm not going to send you our returns for you to check

but it is NOT underwithholding. We've always set our withholding to the break even or a slight refund point. The one year before this (about 15 years ago) that we did have to pay anything, it was $11.00.

Our income is 1/2 what it was 5 years ago, before my husband's company sold out in order to break the union and after being out of work for 2 years (during which time we had 6 months of unemployment that was almost as much as his withholding from the good job) and we are still paying $2500 to $3000 MORE than what's been withheld due to the fact that we are now hit with AMT, aren't allowed to calculate the personal deduction, mortgage interest deduction and several other things. Having to add those things back in as taxable income as well as any state tax refund we might have gotten have put a serious hurt on everything. Only farmers and fishermen are allowed to income average any more so once my husband got back to work, those 2 years of practically nothing did nothing to help on taxes. And we're still picking our jaws up off the ground when our filing was kicked back to us telling us that we had to file under AMT, owed more money for taxes plus a penalty and interest. We were just lucky enough to be able to borrow the sum from my son to pay it before it got too big to handle that year. And it's been going up every year since.

Yes, we could have more withheld but instead I put every extra (and some that aren't so extra) dollar into savings, where we can reap at least some benefit from it before having to take it back out and send it to the gov't. Extra withholding won't give us the extra $1.28 per month that the bank does.

[fleabert]

5. I am tax clueless- someone tell me how to figure out if this applies to me...nt

[Igel]

6. When you do your taxes, at some point

the form instructs you to some schedule for the AMT. This winter when you do your taxes (ok, spring), look for it. It's a scary little time-bomb in the tax code.

A couple of years ago my and my wife's income was about $105k, no house, one kid. We just missed the AMT because I was self-employed, so I got to deduct an amount equivalent to the employer's contribution for SS (etc.). Had we made something like $2k more, our taxes would have soared.

[fleabert]

8. oh shit.

I am crossing my fingers. thanks for the advice. I am going to check it out tonight.

[papau]

12. Your tax does not soar -it becomes a 25% rate on the income above the income that got you into the

Alt min calculation (there is a rather large deductible in the Alt min calculation.

It is not a big deal. Take your Turbo Tax and rerun your return wuth that extra $2,000 - you will not see your tax increase more than $500 fir that extra $2000 income.

The problen comes in the family that makes perhaps $60,000 and has 12 kids (yielding 12 kids deductions) that gets screwed out of some of those kids deductions - contrary to the intent of the law.

The Alt min is actually a lower rate tax than the rates in the FIT for the rich - you just lose deductions making more income taxable - but again it is at a tax rate that is low for the rich, but rather high for the couple in my example above that make only $60,000.

But it can always be viewed as a "flat tax" with limited deductions - the kind of thing the GOP wants to replace the current FIT.

[Warpy]

21. I got hit with that stinker a few years ago

when my income was a measly $32K but my medical bills were sky high for that year. The AMT kicks in whenever your deductions are too high. This keeps plutocrats and corporations from doing enough creative accounting to skip paying taxes entirely, but it's killing a lot of ordinary citizens with legitimate deductions.

It's coming under scrutiny now because the middle class tax cuts that have increased every year will be enough to trigger the AMT all by themselves. Add a mortgage interest deduction and a few health care costs and taxpayers will be nailed to the wall, unable to take their lawful deductions because the GOP made sure there was no income floor and that the formula didn't take inflation into account.

In other words, it's another GOP back door tax increase on working people while the wealthiest are pretty much allowed to skate.

[papau]

25. I agree - harmless middle class deductions should not be the "problem" the alt min is

solving.

And the fix is simple and cheap.

But total repeal is yet another gift to the rich - this time 1 trillion over 10 years.

[bluestateguy]

7. Not a bad idea

Rangel should advance this position alongside his advocacy that the Bush tax cuts for the top 2% be phased out.

Rangel is from NYC, where the cost of living is very high. Not all of his constituents are poor people in Harlem.

[Lexingtonian]

9. it isn't a "technical mistake"

Republicans and 'conservative' Democrats intentionally wrote and have kept the AMT from an internal index, precisely so that they get a political dilemma and argument for throwing it out entirely when it hits the upper middle class.

The original intention of the AMT was to prevent extremely wealthy people from tax sheltering very high proportions of their income- billionaires not paying any income taxes, that sort of thing.

[papau]

18. With Rangel advocating repeal I am also suspicious - I thought Charlie was a liberal

Sounds like he is kind to rich and corporate.

:-(

[mom cat]

10. Time to reinstitute a real progressive tax system.

[geek tragedy]

13. The merely affluent have learned that Republicans

don't consider them part of the base.

"Yeah, you're comfortable. But you're not rich, motherfucker."

[NVMojo]

16. Thank FUCKING HEAVEN!!! A tax break for the middle class that Bush

has ignored!!!!

[papau]

19. You forgot the sarcasm symbol! :-) I look forward to a middle class tax break but

repeal of the alt min is not such a break for the middle class - but it is a gift of 1 trillion over 10 years to the rich.

:-)

[FreeStateDemocrat]

29. Tired of Rangel trying to set the Democratic agenda, he likes the media exposure way too much.

[Freddie Stubbs]

30. As the Chairman of the Way & Means Committee,

he will have a lot of say on tax issues. All tax laws must pass through that committee. Ditto trade, Social Security, and healthcare bills.

[mhatrw]

32. Fixing the AMT = good. Scrapping it = another huge tax break for the richest.

[davepc]

35. As Ways and Means chairman, I hope he has some influence on the Democratic angenda re: taxation

As, that would be his job.

[mhatrw]

31. Fix it. Don't scrap it.

It serves a valuable purpose. It keeps the richest from using too many tax loopholes. Just index it for inflation and leave it be.

[TankLV]

34. FIX it - don't scrap it...

Make it apply to the rich - create a "floor" where it kicks in indexed to inflation...