AP: Alt Min Tax tax "fix" for wealthy to cost 1.5 Trillion more in deficit

http://ap.tbo.com/ap/breaking/MGA7H25Q4ID.html

Tax Surcharge on Wealthy a Growing Problem for Middle Class
By Mary Dalrymple The Associated Press

WASHINGTON (AP) - An obscure tax intended to prevent wealthy individuals from dodging their income taxes will hit one-third of taxpayers by the end of the decade, private researchers report.
By 2010, many taxpayers who consider themselves average middle-class families will pay the tax. It will hit 97 percent of married couples, with 2 children, who earn $75,000 to $100,000.
Researcher Leonard Burman, co-director of the nonpartisan Tax Policy Center, said Monday that repeal is the best way to prevent the tax from plaguing the middle class.

"But it would cost a lot," he said, estimating a nearly $1.5 trillion drain on the federal government through 2013 if the tax were repealed this year. The Tax Policy Center is a joint venture of the Urban Institute and the Brookings Institution. The tax, called the alternative minimum tax, started in 1970 after lawmakers discovered that a handful of high-income households had used tax shelters to avoid paying any income taxes. <snip>

"The good news is that as the reach of the alternative minimum tax expands to encompass ever more taxpayers, the political benefits of seeking out a solution will expand as well," Burman said. Congress stopped the tax from encroaching on additional taxpayers in the $350 billion economic package enacted in May. Although lawmakers have blunted its effect for a few years, the tax will continue to effect more middle class taxpayers because it is not indexed for inflation. That means it will strike increasingly more taxpayers as their incomes rise. Snip>

The researchers also concluded the tax no longer serves its original purpose and does little to block individuals from using tax shelters. In the late 1960s, when lawmakers identified individual tax shelters, many high-income individuals converted their earned income, taxed at high rates, into capital gains, taxed at a lower rates. Over time, lawmakers changed the alternative minimum tax computations to exclude capital gains. Congress acted in May to reduce the top capital gains rate to 15 percent, and Burman said the reduction could create more tax shelters. <snip>

This is a subject that always gets on my nerves. Who is "wealthy"? How do you define "wealthy"? Is it a set annual, gross income, regardless of where you live? $80,000 a year results in a much more comfortable lifestyle in rural South Dakota than it does in any major urban area. Do you apply the same standard for both?

The government would do much better to just start closing loopholes than trying to dick around with this anymore.

Wealthy begins usually at the amount those that make more you are at.

That is why I like a flat tax - 35%, with no payroll tax, and only a per person dediction of 7500. (3750 for kids) Fair is what that tax would have you pay. If you pay less you are ripping off the system.

They hit lower-income people much harder than they do upper-income people.

is less regressive.

The key is replacing the payroll tax - and then having large per person deductible with offsetting higher final rate.

The result is excellent in terms of being progressibe.

is less regressive.

The key is replacing the payroll tax - and then having large per person deductible with offsetting higher final rate.

The result is excellent in terms of being progressive.

is less regressive.

The key is replacing the payroll tax - and then having large per person deductible with offsetting higher final rate.

The result is excellent in terms of being progressive.

n/t