Tax system inequities need congressional fix

Published: April 15, 2005

Each year, a growing number of middle-class Americans are surprised to find out that they're lumped with the super-rich when it comes to their annual tax liability.

In 2003, 89,000 tax returns in the Bay State - nearly 4 percent of state taxpayers - were subject to the "alternative minimum tax," costing them an average of $3,829. Originally designed to prevent America's wealthiest individuals from using various loopholes to escape paying taxes altogether, more middle-income Americans are obliged to pay the alternative minimum tax, (AMT), an extra tax paid on top of regular income tax.

Under the alternative minimum tax, which operates alongside the income tax, taxpayers who meet certain income and deduction thresholds must calculate their taxes both ways and pay whichever is greater. Exemption levels used to calculate the alternative minimum tax eligibility have not been updated for inflation. So as incomes and the value of federal tax deductions rise, more folks are caught in the double bind.

By 2010, nearly one-third of all Massachusetts taxpayers will be paying the alternative minimum tax, according to the Tax Policy Center, a joint enterprise of the Brookings Institution and the Urban Institute, two nonpartisan think tanks in Washington.

"The people who are hit by the alternative minimum tax are wage-earning salespeople, teachers, pharmacists, people who have lots of children or paid lots of local taxes - real estate, income and property taxes," according to the owner of a tax preparation service in Omaha.

U.S. Rep. Richard E. Neal, D-Springfield, has been a vocal proponent of simplifying the individual tax code to address this inequity. Efforts to rectify this law of unintended consequences have been unsuccessful. Currently, Congress is awaiting recommendations from a panel appointed by President Bush to study changes to the nation's tax system.

The panel is expected to propose eliminating or scaling back the tax. But killing the tax would deprive the government of more than $50 billion in revenue next year and $670 billion over the next decade, according the Tax Policy Center.

As another tax filing deadline faces the nation, it's time Congress faced up to tax inequities in America and did something about those imbalances. It won't be an easy fix, but that's what we hired Congress to do.