You could avoid getting a heavy tax gouging next year.
Last Wednesday, the U.S. House of Representatives voted 333-89 for H.R. 4227, which would postpone by one year forcing 9 million more taxpayers to pay the alternative minimum tax.
“The force of inflation is pushing more middle-income households into the alternative minimum tax each year,” AP reported. “About 3 million individuals and families paid it this year.”
That’s because the alternative minimum tax is not indexed for inflation, as the regular income tax is. According to an analysis by the Brookings Institution, “By 2010, the AMT will affect 33 million taxpayers — about one-third of all tax returns — up from 1 million in 1999. This would make the AMT almost as common as the mortgage interest deduction is today.”
Currently, the law exempts $40,250 in income for individuals and $58,000 for couples from paying the tax. But unless H.R. 4227 is passed also by the Senate and signed by the president, next year the exemption levels will drop to $33,750 for individuals and $45,000 for couples.
It’s pretty strange when an income of $33,750 makes you “rich.” But that’s the mess U.S. tax law has become.
In effect, our country has two tax systems: the regular income tax and the alternative minimum tax. The government forces you to pay the higher amount.
First imposed in 1970, the minimum tax is a relic of the anti-business, anti-wealth attitude too prevalent about 35 years ago when the top income tax rate was a hefty 70 percent (today it’s 35 percent), and those who used tax loopholes were considered tax “cheats” who had to be coerced to pay “their fair share.”
But three decades of inflation have pushed even those in the middle class into what, in the pre-inflation 1960s, were upper-income tax brackets.
Unless this one-year tax moratorium is passed, taxpayers will get hit with $17.8 billion in tax increases next year — just as the economy is recovering.
Ideally, the alternative minimum tax would be repealed entirely. But postponing it being imposed on 9 million more taxpayers is essential. The Senate should also pass H.R. 4227.