Alternative Tax Law Causes Controversy In The US

by Leroy Baker, Tax-news.com, New York

04 June 2001

George Bush II (Son of George…) has caused concern among US citizens with a sleight of hand which could see the savings of tens of millions of US taxpayers eaten away by 2010.

The unpopular alternative minimum tax, which is designed to target the rich, forces taxpayers with significant deductions to compute their tax bills twice; once in the normal way, and once at a slightly lower tax rate, but without being able to take advantage of many of the existing exemptions. They must then pay whichever tax is higher.

Higher deductions have been promised later in the decade, with married couples and higher income taxpayers both supposedly to benefit. However, these deductions do not apply to the alternative tax. Although the bill has been written in such a way that until the next presidential election, the impact of this will be reduced, the law repeals that provision in 2005, meaning that the estimated 5.3 million taxpayers paying the alternative tax in 2004 will shoot up, peaking at 35.5 million in 2010, unless something is done about it before then.

Taxpayers living in states with high state and local income taxes are set to be the most affected by the alternative tax. The government's plans for the phasing out of estate tax by 2010 have also come under fire for several reasons, not least of which is that in 2011, estate tax comes back to current levels! The assumption seems to be that there will be plenty of room to manoeuvre in the future, and that the 2011 tax increases can be repealed. However, many feel that this is taking too much of a gamble on the strength of the future economy, and that more consideration should have been given to effects of the present tax laws.

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