Here you go, Brumar, the dems are tackling the AMT problem.
You wanted me to let you know.
__________________________________________________________
Democrats Focus
On Tax Relief
For Middle Class
By SARAH LUECK
February 16, 2007; Page A1
WASHINGTON -- The new Democratic-controlled Congress is looking to rein in looming tax increases on the middle class, possibly covering the cost by raising taxes on upper-income households. And the Bush administration may not stand in the way.
The possible bargain centers on the Alternative Minimum Tax, a kind of parallel income tax that hit 3.5 million U.S. taxpayers in the 2006 tax year. Congressional Democrats are eager to keep the AMT from ensnaring millions more middle-class taxpayers. They also must find a way to cover the estimated $50 billion cost of scaling back the tax this year.
TAX BLOG
From now through April 17, the Tax Blog gathers tax tips and advice from the Journal and other sources.
WALL STREET JOURNAL VIDEO
WSJ's John Harwood comments on plans by House Democrats to issue small-business tax breaks and what American business may find beneficial about the plan.In recent days, Bush administration officials have signaled they may not oppose a likely method of covering those costs: raising taxes on the nation's wealthiest citizens. That concession could mark the beginning of a bigger debate on revisiting the Bush tax cuts, which could ultimately lead to reversing at least some of the cuts given to upper-income Americans over the past six years.
The AMT dates back to the late 1960s when Congress discovered that a small number of upper-income households had managed to avoid federal income taxes entirely by exploiting deductions, credits, loopholes, and shelters. The AMT has been adjusted since. But because it has never been indexed for inflation, rapidly growing numbers of taxpayers are vulnerable to its bite. The Treasury estimates that unless Congress acts, more than 23 million households will be affected by the AMT in the current tax year, many with incomes below $100,000.
Among those most likely to face higher tax bills because of the AMT, at least in the near term, are those who live in high-tax states such as New York, California and Massachusetts, which also tend to be Democratic-leaning. Unlike regular income taxes, the AMT doesn't provide for deductions of state and local taxes.
QUESTION OF THE DAY
Which tax should Congress lower first? Share your views.The Bush tax cuts have accelerated the AMT's reach into the middle class, by reducing the amounts those households would pay under the regular income tax. That's particularly true for families claiming multiple child credits.
The White House and key lawmakers in both parties agree some kind of fix should be enacted to prevent the AMT from reaching further into the middle class, at least for this year. The big question: If Congress passes a bill raising taxes to finance such a measure, would President Bush, a staunch opponent of tax increases, veto it?
Mr. Bush is likely to remain firmly opposed to raising marginal tax rates. But administration officials have been quietly suggesting that he wouldn't necessarily object if Democrats passed a "revenue neutral" bill that cut taxes paid under AMT and raised them elsewhere to offset any revenue lost to the Treasury.
These officials say replacing the tax increase that's scheduled under the AMT with a tax increase somewhere else doesn't, on balance, raise taxes. Indeed, a health-care proposal Mr. Bush recently floated to raise taxes on people with high-value health benefits shows he is willing to accept some forms of tax increases on upper-income Americans.
Democrats have been circumspect about disclosing their plans for new taxes, which are in the early stages. A group of Democratic senators yesterday unveiled a proposal for new middle-class tax breaks, including extending AMT relief for two years. A spokesman for one of the sponsors, New York Sen. Charles Schumer, said the lawmakers would suggest paying for that relief through some combination of higher taxes on oil companies, higher taxes on families making more than $400,000 a year, and ramping up enforcement to grab more of the "tax gap," taxes that the Internal Revenue Service says are owed but persistently aren't paid.
The chairman of the Senate's tax panel, Montana Democrat Max Baucus, recently proposed eliminating the AMT.
Beyond the next year or two, House Democrats are studying how they might enact a longer-term AMT reprieve for some taxpayers. One option under discussion would permanently exempt households with annual incomes of as much as $250,000 from paying the AMT, with some kind of graduated relief for those between $250,000 and $500,000. To offset the revenue shortfall, people making more than $500,000 a year could be required to pay more tax, either through a higher AMT rate, or higher regular income-tax rates.
It's unclear whether the administration would be amenable to such a major change and its attendant tax increases. But some Democrats are saying that providing a tax cut for the middle and upper-middle classes would have political and policy benefits that justify tackling the issue.
"It's going to cause a little pain. I think for what we're doing, it's worth it..." says Rep. Charles Rangel (D., N.Y.), chairman of the House Ways and Means Committee.
The AMT requires taxpayers to do two sets of calculations. First, they calculate their taxes using regular rules. Then they have to calculate their taxes again using a second set of rules, and pay whichever sum is higher. Typically, the very wealthy don't get hit by the AMT because their regular income-tax liability tends to be higher, although the bulk of filers who pay the AMT have incomes above $200,000 a year.
Rep. Richard Neal (D., Mass.), tapped by Mr. Rangel as the House Democrats' point man on the issue, declined to comment on what specific direction he wants to take on the AMT, saying only that he is seeking an "egalitarian" approach. Mr. Neal has in the past proposed eliminating the AMT altogether, and making up for the lost revenue with graduated income-tax increases for households with incomes of $120,000 a year or higher.
There's broad agreement in Congress that something should be done about the AMT. For the past six years, with a Republican majority, lawmakers have voted to exempt millions of people from paying the tax, keeping the number of people affected by AMT at less than four million.
But this year, House Democrats have reinstated 1990s-era budget rules that lapsed under Republicans -- requiring new tax cuts to be offset by equivalent tax increases or spending cuts. Senate Democrats have indicated they will do the same.
And that, in turn, is leading to the bigger debate about the Bush tax cuts. Democrats are gearing up to make the case that many middle-class families wouldn't fully benefit from those tax cuts because of the AMT -- and thus, it's a matter of fairness to modify the AMT, possibly by undoing some of those cuts.
Many Democrats say the Bush cuts are the biggest factor in making middle-class people more likely to pay the AMT. Some Republicans, meanwhile, say that it's illogical to make AMT relief contingent on raising taxes to offset lost revenues, since Congress has been rescuing most people from AMT expansion anyway.
Those points will be a major focus of a series of hearings next month by the Select Revenue Subcommittee of House Ways and Means. "There are a lot of people who never really benefit from the Bush tax cuts," says Mr. Neal, who is chairman of the panel. "There will be a full acknowledgement that is the case."
Reps. Rangel, Neal and others say the people in their states are acutely aware of the threat of the AMT, despite the repeated patches passed by Congress.
In Westchester County, which covers several New York Democrats' congressional districts, County Executive Andrew Spano's financial adviser recently warned him he might be hit this year by the AMT. Mr. Spano, who is married and has a salary of $163,000, has been urging action in Washington to rein in the AMT. In the past, Mr. Spano hasn't been personally affected by the tax. "I'm not happy about it, but I'm in better shape than most," he says. Even people with seemingly high incomes may have trouble paying the AMT in areas like Westchester County, where the cost of living is high, he adds.
One self-described "plain vanilla taxpayer" who Mr. Neal's office offered as an example is Maggie Rauh, a 40-year-old tax accountant in Chicopee, Mass. Ms. Rauh and her husband have three children under 12 and a combined income of $75,000. She tracks their projected tax refund monthly and says she recently was "shocked" to find out they would be subject to the AMT. "I sat here at my computer and my jaw dropped," says Ms. Rauh. "I was outraged."
Ms. Rauh, who usually votes Republican, says she was happy about recent income-tax cuts passed by Congress, especially the bigger credits provided for each child. But with the AMT, "I'm losing any kind of gain I got," Ms. Rauh says. The Rauhs say they will owe a projected $7,500 this year because of the AMT, compared with the $6,100 they would have owed under the regular income tax.
"That $1,400 is our vacation, our trip to Disney," Ms. Rauh says.
According to a recent report by the Congressional Research Service, households with incomes as low as $50,000 to $70,000 could be hit with the AMT this year. Taxpayers at the lower end of the income range include those claiming three or more children.
For married couples with two children and an income of $70,000, 21% of the value of the Bush tax cuts, or $427, would be lost to the AMT. That "take back" effect is higher -- more than 60% or $2,500 -- for people with incomes of $100,000 to $150,000 and two children, the report said.
Mr. Neal plans to suggest possible solutions to Mr. Rangel by April. "We're going to have to get together and find out what is the political power of 23...million people, over those that will get hurt," says Mr. Rangel, "which I don't think is a big problem."
Write to Sarah Lueck at sarah.lueck@wsj.com
|
