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(Link to Article)The Alternative Minimum Tax is becoming a miserable annual tradition for a growing group of prosperous taxpayers. (If you've just received a nervous phone message from your accountant—that's probably what she's calling about.) The AMT traces its origins to a minimum tax enacted in 1970 when Americans were scandalized to learn that some 155 high-earning taxpayers owed no income taxes in 1966. The AMT was originally designed so that people who had a lot of income but loads of deductions—through the standard exemption, the ability to write off property taxes and state income taxes—couldn't reduce their taxable income to next to nothing. Historically, it applied to a tiny minority of taxpayers. But with every passing year, more and more citizens are ushered behind the velvet ropes. This congressional backgrounder suggests that 1.8 million Americans paid it in 2001. Newsweek's nearly infallible Allan Sloan wrote earlier this month that "about 2.3 million returns for 2003 got nipped by the AMT." The numbers are set to rise exponentially in the next several years. A two-income couple in New Jersey—he's an accountant, she's a public school teacher—with combined income of $230,000, three kids, and annual property taxes of $15,000, could easily fall into paying the AMT. Even government bureaucrats get nailed. Last year, IRS Taxpayer Advocate Nina Olson paid the AMT.
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A variety of factors influence whether you get trapped by the AMT. But two of the most important ones are high property taxes (which tend frequently, thought not always, to correlate with high housing prices) and high state and local income taxes. (The high nonfederal taxes increase your deductions, pulling you toward the AMT.) So if you live in a no-income-tax state like Florida, Texas, or Wyoming, or in a state where housing prices and property taxes are very low, like, say, Mississippi or anywhere in the Great Plains, you're less likely to be AMTed. (These helpful charts from the Tax Foundation list state income-tax rates and state and local tax burdens.) Income from options incentives can also help land you in AMT territory.
The AMT seems designed to snare people who earn between $200,000 and $500,000; who work in fields like finance and technology; and who live in places where property taxes and state and local income taxes are high, like New York, New Jersey, Connecticut, Massachusetts, California, and Oregon—states that are resolutely Democratic.
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The administration, out to lunch on so many aspects of economic policy, is either oblivious or willfully ignoring the AMT problem. A few bills were introduced last year to deal with aspects of the AMT tangle, but there's been no sign of progress. It's hard not to conclude that there are some pretty crude political calculations behind the inaction. Most of the victims of the AMT live in places where Bush and many Republicans can't compete. Besides, with Bushenfreude still rampant, Republicans know that offering high-income, coast-dwelling liberals tax relief won't help the GOP in November.I've read a number of articles on the AMT but this one points out clearly Shrub's hypocrisy on taxation. His tax cuts only serve to benefit those who put him into office and attempt to preserve his reselection. There is no economic benefit to them unless you are a wealthy Repub.
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