Dodging the AMT bullet

Published: May 7, 2004

The House voted 333-89 Wednesday to grant a reprieve for millions of American families that would be hit next year with a tax they were never intended to pay. That's not good enough. It does nothing for families already paying the tax through no fault of their own. A permanent fix is needed.

The House raised federal income-tax exemptions for families and singles for one year to prevent 9 million Americans from having to pay the alternative minimum tax next year. That would have cost them $17.8 billion they would not otherwise have to pay. The AMT was enacted in 1969 to ensure that the wealthy could not hide their incomes through deductions and other means to avoid paying taxes altogether.

The Bush tax cuts reduced regular tax rates but did not adjust the AMT, nor was the AMT indexed for inflation. The result is that more and more middle-class families and individuals fall unintended under the AMT as the inflation rate increases, however slowly.

The Tax Policy Center, formed by the Brookings Institution and Urban Institute, projects that 97 percent of two-children families earning between $50,000 and $75,000 a year will lose all or some of their Bush tax cuts because of the AMT. Where's the tax-cut sense in that?

Rep. Jim McDermott, D-Wash., rightly criticized Wednesday's reprieve as putting "a Band-Aid on a problem that you put a Band-Aid on last year." That's because the AMT will be back next year for 2006 and will envelop as many as 12 million Americans unless it is fixed.

Nina Olson, the Internal Revenue Service's own taxpayer advocate, calls the AMT the No. 1 problem facing U.S. taxpayers. Indeed, the AMT unfairly punishes middle-income taxpayers in high-tax states like New York who claim deductions for state and local taxes, big families, unreimbursed employee expenses and dependent parents.

The reprieve still needs to pass the Senate and be signed into law by the president. Congress must do more. Unless, of course, there is unspoken approval of receiving this revenue from people who can only be called tax victims. Give 'em tax cuts and let the AMT take it back. How cynical that would be.

The AMT should be indexed to inflation to prevent it from creeping up on people it was not intended to apply to while still preventing the very wealthy from dodging their taxes. The Congressional Budget Office estimates that a permanent fix would cost the government $370 billion in revenue. That, however, would be money that was never intended to be collected in the first place.