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Democrats Say AMT Penalizes Working Families

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

30 May 2007


House Ways and Means subcommittee chairman Richard E. Neal has released non-partisan data which he claims shows that the Alternative Minimum Tax (AMT) disproportionately hurts working families and benefits the super wealthy.

The Congressional Research Service (CRS) has studied the impact of the AMT, and deemed the reduction or elimination of promised cuts in the regular income tax by the AMT as the “take back” effect.

New data from the non-partisan Joint Committee on Taxation (JCT) shows the actual dollar impact by income group of this “take back” effect of the AMT. For tax year 2008, families earning between $100,000 and $200,000 will lose 47% of the promised tax cuts enacted in 2001 and 2003, including the rate reductions and marriage penalty relief, among other cuts.

The AMT, enacted in 1969, created a two-tier tax system to ensure that America's wealthiest taxpayers did not evade income taxes altogether through the use of tax shelters, loopholes and deductions. However, unlike federal income tax, AMT is not indexed to inflation, meaning that every year more and more US taxpayers are falling into the AMT trap.

Neal, who chairs the Select Revenue Measures Subcommittee, observed that: “While some Members have trumpeted the tax relief to middle-class families, these new numbers show that the 'check is still in the mail' for most working families. This chart makes clear that families earning between $75,000-200,000 are footing the bill for the 2001 and 2003 tax cuts for the super wealthy.”

The JCT examined the impact of repealing the 2001 and 2003 enacted tax cuts with and without the impact of AMT. Results showed:

  • For taxpayers earning over $1 million, AMT only “takes back” 3% of these cuts.
  • For families earning between $75,000 and 100,000, the AMT takes back 20% of promised cuts, almost seven times as much take-back.
  • For families earning between $100,000 and 200,000, AMT takes back 47% of the promised cuts.
  • For families earning between $200,000 and $500,000, AMT takes back 63% of the tax cuts.

Neal added: "Indeed, those families who thought they were doing pretty well, at $200,000 to 500,000 in earnings, really take it on the chin losing 63% of the promised Bush tax breaks."

He concluded: "No wonder suburban soccer moms are not seeing the impact of the ballyhooed Bush tax relief in their pocketbooks while the super-rich are taking 97% of their $65 billion in tax cuts to the bank.”

The Democrats, who now control Congress, have flagged the AMT problem as one of their major legislative priorities, but, despite widespread bipartisan support for a full repeal of the system, the question remains as to how lawmakers would fill the huge revenue hole that would come about by rolling back or scrapping the tax. House Democrats have reportedly come up with a compromise plan that would exempt everyone who earns less than $250,000 from the AMT. However, top Republicans are concerned that Democrats would offset the revenue loss with increases in marginal tax rates, or by raising the top rate of AMT.


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