Stealth Income-Tax Hike Soon to Attack Middle Class

Author: Editorial

Published: September 26, 2002

This is not the best of times for middle-class Americans. The median income of U.S. households fell last year for the first time in a decade. And on the horizon is a stealth income-tax hike, courtesy of an alternative tax that targets the rich but is spreading like a cancer to lower earners. It will engulf 36 million taxpayers by 2010.

Taxpayers could be spared that hit if Washington were to rouse itself to amend the Alternative Minimum Tax. But fixing the problem would cost the federal treasury billions of dollars. That revenue would have to be replaced, and that's the political rub. With war and homeland security driving large increases in spending, the wealthy will have to pay more in taxes if the middle class is to be spared.

Officials don't like to talk about tax hikes in an election year, but it's a conversation candidates and voters need to have.

According to the Census Bureau, the nation's median household income dropped by $934 in 2001 to $42,228. Experts blamed the nation's weak economy as income fell across large segments of the population. But the gap between rich and poor continued to grow.

The AMT is a parallel system for calculating income-tax liability. It was enacted in 1969 after lawmakers realized that 155 people made more than $200,000 in 1966 and yet, through skillful use of deductions, paid no federal income tax. The AMT is not indexed for inflation, so it captures more taxpayers each year.

The AMT will have a negligible effect on households around the median, those making less than $50,000 a year. But for those in the upper middle, earning $75,000 to $100,000, the picture is bleak, according to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.

Because of the AMT, 85 percent of all taxpayers with two or more children will be paying higher tax bills by 2010 than they would under the regular income tax. Fully 97 percent of those families with children and incomes of $75,000 to $100,000 will be forced into the AMT. Those are not the high-flying taxpayers the AMT was designed to ground. The tax must be revised.