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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (42763)	12/14/2005 1:28:16 PM
From: RealMuLan	Read Replies (1) \| Respond to of 116555

Tax trap threatens millions in 2006 HOUSE, SENATE FAIL TO FORGE AMT RELIEF By Mark Schwanhausser Mercury News Efforts to slow the spread of the alternative minimum tax have bogged down in Congress, leaving more than 15 million taxpayers potentially susceptible to the ``stealth tax'' for the first time starting in 2006. Both the House and Senate have passed bills that provide another year of relief from the tax, which is particularly troublesome in affluent areas like Silicon Valley. But Senate Majority Leader Bill Frist, R-Tenn., told reporters Tuesday that wrangling over tax policy makes it unlikely Congress will push through narrow legislation addressing the AMT before the current patch expires Dec. 31. That means taxpayers will face roughly $30 billion in extra taxes under the AMT system unless lawmakers approve retroactive changes. Those taxes would be due April 15, 2007. Many taxpayers don't realize that they're supposed to calculate their income tax under both the regular rules and the AMT rules -- and then pay whichever bill is larger. The tax's reach is spreading into the middle class because every cut under the regular tax system forces more middle-class taxpayers instead to pay the AMT, which has never been indexed to inflation. Enacted in 1969 after 155 wealthy taxpayers paid no taxes, the AMT is projected to hit 3.5 million people in 2005. If retroactive legislation for 2006 isn't passed, the AMT will hit nearly 19 million taxpayers next year. Under current law, 35 million would pay the AMT in 2010 -- a threat that led the Internal Revenue Service's Taxpayer Advocate to rate it the No. 1 problem facing taxpayers. The tax is increasingly common in higher-income areas like Silicon Valley, where large families, high real estate and state income taxes, and stock-option windfalls help trigger the tax. Left unchecked, by 2010 the AMT is projected to snare 94 percent of married couples with two children and adjusted gross incomes between $75,000 and $100,000, the Taxpayer Advocate said. Last month, President Bush's tax reform panel proposed abolishing the AMT altogether -- a move that would cost the government $1.2 trillion in tax revenue over a decade. To offset that revenue loss, however, the panel proposed slashing the deduction for mortgage interest and other tax breaks -- enraging many California homeowners, the real estate and mortgage industry, and state lawmakers. The Treasury is considering the panel's recommendations. The House and Senate have passed separate bills that would temporarily fix the problem in 2006. But those bills have gotten stuck in a broader debate over tax policy, specifically a GOP effort to prevent tax cuts for capital gains and dividends from expiring at the end of 2008. Democrats say Republicans have their priorities wrong. ``We should fix the AMT for 2006 and work to address it permanently before even thinking about cap gains,'' said Sen. Max Baucus, D-Mont. mercurynews.com