As the August recess ends for Congress next Monday, conservatives across the nation should be ready with a single question: What about the AMT?
Of all of the tax and spending issues facing the nation come January 1, 2013, the Alternative Minimum Tax (AMT) should be the most urgent to those who oppose tax increases. Why? Because while the other tax hikes and the spending reductions will take place starting in 2013, the AMT is already taking effect.
The AMT was instituted by Congress in 1978 as an extra income tax on certain taxpayers, mostly those in the upper echelon of earners. Unfortunately, the law never included an adjustment for inflation, and so in 2005 it had grown from impacting less than one percent of taxpayers to affecting three percent. However, as shown in the chart below, if Congress does not change current law, the AMT will affect 19% of taxpayers when they file their 2012 taxes.
Why is this? Congress seems to have forgotten to “patch” the AMT for the 2012 tax year, meaning every dollar earned by those who will fit under the AMT’s umbrella is being taxed at the rates required by the AMT. Patching the AMT, which has happened for over a decade, takes place when Congress passes a temporary law preventing the AMT from taking full effect. Unfortunately, Congress neglected to do this for 2012.
What are some potential the consequences of this inaction by Congress? There are three major effects:
- A tax increase of over $118 billion next year if a patch is not instituted.
- If the AMT is not patched, the tax increase won’t just hit wealthy taxpayers. While the AMT was sparked by congressional testimony from LBJ’s Treasury Secretary in 1969 in reference to 155 wealthy taxpayers who had paid no traditional income tax, its effects are felt by the middle-class as well. Just Facts President James Agresti, for example, has forthcoming research showing that over 200,000 taxpayers making under $100,000 were hit by the AMT in 2009. This means fully 5.3% of all Americans paying the AMT were making less than $100,000.
- If the 112th Congress fails to reach an agreement by January 1st, this will complicate tax returns for millions of taxpayers, especially if the 113th Congress retroactively applies a patch to the AMT.
Once again, the Washington promise that only the wealthy will bear the consequences of a tax hike have been proven false, and in the meantime Americans face a total tax hike of over $400 billion if Congress doesn’t act by the year’s end. If Congress can’t even prevent hundreds of billions in tax hikes next year, even a popularly patched one like the AMT, how can it be trusted to move the yardstick at all on actual reformation of the code? The unfortunate answer may be that it can’t, which is why grassroots activists must continue to hold their elected representatives accountable.