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President's commission on tax reform expected to issue its official recommendations tomorrow

Author: Anchor Kai Ryssdal, Reporter Scott Tong

Published: October 31, 2005

KAI RYSSDAL, anchor: We are still a long way from April 15th, but taxes are in the news. The president's commission on tax reform is expected to issue its official recommendations tomorrow. One very high-profile suggestion will likely be to ditch something called the AMT. That is the alternative minimum tax. And if you've never heard of it or you think it won't hit you, it will unless Congress can find a way to pay for getting rid of it. Here's MARKETPLACE's Scott Tong.

SCOTT TONG reporting: It was meant to go after rich people with tax shelters, but these days the AMT is unintentionally hitting the rest of us, especially big families like...

Mr. LEN BURMAN (Economist, Urban Institute): "The Brady Bunch."

TONG: Economist Len Burman is with the Urban Institute, a think tank.

Mr. BURMAN: You have a couple earning $100,000. They've got six kids. They owe more than $700 in additional tax because of the alternative minimum tax.

TONG: Burman won't say if he's actually watched the show, but he's chosen the perfect innocent victims to explain why the AMT is so bad. I mean, these people talk like this.

MAUREEN McCORMICK: (As Marcia) I think you're real groovy but I already promised I'd go to the school dance with Doug Williams.

TONG: They're wholesome and financially they live within their means. Robert Thompson studies popular television at Syracuse.

Professor ROBERT THOMPSON (Syracuse): Six kids are sharing one bathroom, so a relatively modest lifestyle, middle class.

TONG: Hardly the folks Congress had in mind when it created the alternative minimum tax in December 1969. That's three months after Hollywood created the Bradys. The AMT is an extra tax meant to snare folks who hide behind loopholes and other tax shelters. Over the years as Congress tinkered with the tax code, it added kids to the list of evil loopholes. Economist Burman says that's why the Bradys on paper are in a bunch of trouble.

Mr. BURMAN: They don't get to take those six cute little kids as deductions anymore. They don't get to deduct their state and local taxes anymore.

TONG: Unless Congress intervenes, there aren't many ways for middle-class families to avoid the AMT. In the Brady case, mom and dad could stay single since the AMT has huge marriage penalties, again unintended, or they could kick a few kids off the show reality style. Here's Professor Thompson.

Prof. THOMPSON: First off, Greg's got to go. He eats the most. Secondly, and this would be a lot harder, but, you know, Jan is so high maintenance. She has to pretend she has a boyfriend, constant issues with her big sister Marcia, Marcia, Marcia.

EVA PLUMB: (As Jan) Marcia, Marcia, Marcia.

TONG: Of course, each episode ends with smiles and laughter from a can; not so easy with the AMT. Len Burman says while no one likes it, it will rake in more than a trillion dollars in the next decades. There's the rub.

Mr. BURMAN: The reason the AMT is hard to fix is that it's generating a huge amount of revenue. I mean, it's sort of like junkies. You know, we know it's bad for us.

TONG: And it's getting worse, and not just for people like the Bradys. Burman says the AMT threshold doesn't rise with inflation. So each year more people get caught in its net. In five years, just about every family with just two kids making $75,000 will pay the extra tax. Robert Thompson.

Prof. THOMPSON: Now all of a sudden, Ward Cleaver, you know, who's stopped at two, Wally and the Beave could, in fact, begin to be penalized as well.

TONG: With victims like that, Congress can't hold out much longer before fixing the dreaded alternative minimum tax. In Washington, I'm Scott Tong for MARKETPLACE.