Friday January 30, 2009
Alternative Minimum Tax (AMT)
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In the current Congress (110th), I am a co-sponsor of S. 55, the Individual Alternative Minimum Tax Repeal Act which would amend the Internal Revenue Code to repeal the alternative minimum tax on individuals. That bill was introduced in January 2007. In October 2007, I joined with Senate Minority Leader Mitch McConnell, Finance Committee Ranking Member Chuck Grassley and fellow Finance Committee member Gordon Smith to call for immedaite action on the measure.
The Alternative Minimum Tax (AMT) was originally enacted in 1969 after Congress discovered that 155 taxpayers making over $200,000 paid no taxes at all. Congress originally estimated that the AMT would only affect one in 500,000 taxpayers. What started as an attempt to make sure wealthy taxpayers could not eliminate their tax liability by using legitimate deductions and exemptions has begun snaring many middle-income taxpayers. In 2001, approximately 2 million people were subject to the AMT. That number is expected to grow to 35 million by the end of the decade if no action is taken.
The Truth About the AMT-The AMT was created in 1969 to address 155 wealthy taxpayers who were able to legally avoid paying any taxes. |
The IRS has estimated that taxpayers spent an average of 63 hours to calculate their AMT liability. To calculate the individual AMT, taxpayers must first calculate taxable income under the regular tax and then add back two categories of items called AMT preferences (exclusion preferences and deferral preferences). If a taxpayer's AMT liability is greater than their regular tax liability, the taxpayer must add the difference to their regular tax liability and pay the total.
The burden of the AMT is misplaced. A tax originally intended to hit the wealthy taxpayers that paid little or no tax, no longer impacts very wealthy taxpayers because the rate structure will continue to hit more and more low and middle income taxpayers. In 2003, 56 percent of AMT taxpayers had income exceeding $200,000, and 35 percent had income between $100,000 and $200,000 (only 9 percent had income of less than $100,000). In 2010, it is expected that 10 percent of AMT payers will have income over $200,000. At that time, a whopping 53 percent of AMT taxpayers will have income of less than $100,000.
To be more specific, here's how the AMT may affect Idahoans: For tax year 2005, there were 9,798 tax returns filed in Idaho that were subject to the AMT. Amazingly, there were 16 Idaho taxpayers with Adjusted Gross Income (AGI) between $20,000 and $30,000 who actually had to pay the AMT, which is ridiculous since the AMT was originally enacted to target just a handful of the wealthiest taxpayers. Another 53 Idaho taxpayers with income between $30,000 and $50,000 had to pay the AMT. Overall, there were 318 Idaho taxpayers with AGI under $75,000, who had to pay a total of over $488,000 in AMT taxes to the government in 2005. In fact, the AMT has often been referred to as the “Millionaire’s Tax,” but of the 9,798 Idaho taxpayers subject to the AMT in 2005, only 172 of them had an AGI over $1 million. It's estimated that for 2006, close to 90,000 Idahoans will face the AMT. I intend to continue working with my colleagues for a permanent repeal of the AMT.
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