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Tame a tax monster

By A TIMES EDITORIAL
Published March 20, 2007

As tax day draws nearer, there are three little words that should send a shiver down the spine of every middle-class taxpayer - "alternative minimum tax." The AMT is coming soon to a middle-class home near you, maybe even your own.

This burdensome tax was passed in 1969 to prevent the superrich from dodging income taxes by taking advantage of deductions and loopholes. But the tax wasn't indexed to inflation, and what was once considered an oversized income is now solidly middle class. Changes to the tax code in 1986 exacerbated things, as did President Bush's tax cuts. So we're left with an AMT monster ready to devour families with incomes further and further down the scale.

This year, the AMT will impact 4.2-million American households and if nothing is done, it is projected to capture another 20-million in 2008, with an average $6,800 increase to each family's tax bill. By 2010, 70 percent of married couples with children earning between $75,000 and $100,000 will be snared.

This has to be fixed. Both the White House and the Senate Budget Committee have offered short-term patches. President Bush's budget provides for one year of relief, while Senate Democrats are pushing a two-year plan. Democrats in the House also are putting together a proposal for a permanent fix. But the loss of an estimated $900-billion in federal revenue over the next decade if the AMT is eliminated is a big stumbling block.

Addressing the AMT wouldn't have been nearly as difficult had Bush and the Republican-led Congress tackled it six years ago rather than advancing a set of tax cuts that disproportionately benefited the wealthiest Americans. Bush knew full well that the AMT freight train was bearing down on America's typical families, particularly those in high-tax states, yet ignored it. Even worse, Bush's 2001 tax cut plan actually contemplated capturing back a third of the tax cuts through the corresponding increases in AMT revenue. A classic bait and switch.

Bush's plan to make his irresponsible tax cuts permanent should be a nonstarter. There is one serious tax reform that Congress needs to enact and that is to permanently lift the AMT burden from middle-class families.

[Last modified March 20, 2007, 02:04:29]