Jim Terry
America's symbolic tax
By Jim Terry
In the political rhetoric now being spit out by the candidates for president, one topic is receiving little discussion.
One of the most egregious laws, and one which illustrates why government should be cautiously called upon to solve problems, or perceived problems, was first passed in 1969 in response to a perceived problem with the tax code.
In May 2001, the Joint Economic Committee (JEC) of the U.S. Congress issued a report titled The Alternative Minimum Tax for Individuals: A Growing Burden. You can read the report at: http://www.house.gov/jec/tax/amt.pdf.
The report details the history of the Alternative Minimum Tax (AMT) and calls it a, "...separate system of income taxation that operates in parallel to the regular income tax. Taxpayers who may be affected by the AMT must recalculate their taxes using rules about income and deductions different from those that apply to regular income tax." The AMT has also been called the stealth tax. A better name would be the bait and switch tax or the legal government robbery tax.
In 1969, in response to testimony from the Secretary of Treasury, Congress enacted a minimum tax. The problem the Secretary raised: that of the 71.1 million individual tax filers in 1967, 155 with income over $200,000 paid no income tax. That equates to .000218% of tax filers. When that information became public, the report goes on to say, "Although the minimum tax was small potatoes in terms of the revenue it yielded, it was a hot potato politically: in 1969, more people had written to Congress to complain about the 155 people who paid no income tax than had written about the Vietnam war."
The JEC report points out the AMT victimizes tax payers in two ways: directly, through higher taxes, and indirectly, through tax preparation because of the AMT's tedious calculations above and beyond the underlying tax reporting. The JEC report estimates the cost of additional time spent by taxpayers in the 1997 tax year for filling out AMT forms at $360 million dollars. That is $2.4 billion in 2011 dollars.
The imposition of an alternate tax system to catch 155 people seems inane when we consider the estimated 1.3 million tax filers directly or indirectly affected by the AMT in 2000. And it is insane now that we know more than half of U.S. households paid no income tax in 2009.
Instead of insuring a minuscule number of Americans would pay some income tax, the original stated goal of the minimum tax, the AMT has merely extended higher tax payments to millions of Americans including a few whose annual incomes fall below $75,000. And a Congressional Budget Office (CBO) report, The Individual Alternative Minimum Tax, January 15, 2010, says, "...that tax structure (the AMT) is more likely to affect married couples, large families, and taxpayers in states with high state and local taxes."
The CBO report says that 4 million tax filers were affected by AMT in 2009 and predicted that if the patch which expired in 2009 was not reenacted, or a new patch not passed into law, 27 million taxpayers would be caught in the snare of the AMT in 2010.
The JEC report of 2001 lists eighteen major changes to the minimum tax laws from 1969 to 2001. The AMT is not indexed for inflation. Therefore, in addition to the eighteen major changes, Congress has patched the AMT, increasing the AMT deductible, numerous times over the years in order to keep the tax from victimizing an increasingly exploding population of middle class taxpayers who were not the stated intended targets.
The JEC report makes a lame attempt to absolve Congress regarding the AMT:
What are the current presidential candidates saying about the AMT in 2011?
President Obama recently said he wants to impose a new minimum tax on wealthy people, but that is not unexpected from the traditional tax and spend liberal who thrives on class warfare.
Governor Mitt Romney's Believe in America: Mitt Romney's Plan For Jobs and Economic Growth, makes one reference to the AMT, "If current tax rates are maintained and the Alternative Minimum Tax is patched, revenues will match their 18-percent-of- GDP historical average within a decade." He doesn't mention a plan to abolish AMT.
Governor Rick Perry has not discussed the AMT and there is no mention of it on his web site. However, he recently announced a new proposal to scrap the current income tax system and impose a flat tax, which would probably abolish the AMT.
Speaker Newt Gingrich does not speak directly to the AMT in his financial proposals. He proposes an optional 15% tax rate for individuals.
Senator Rick Santorum makes no mention of the AMT on his web site.
Congresswoman Michelle Bachmann's plan for prosperity merely states, "fix the AMT," She doesn't define what 'fix' means.
Governor Jon Huntsman plainly says he would abolish the AMT, eliminate all deductions and set up a new system of tax rates of 8%, 14% and 23%. He would also eliminate the capital gains tax and the taxes on dividends.
Representative Ron Paul says he would lower the corporate tax rate to 15%, make the Bush tax cuts permanent, abolish the estate tax and taxes on personal savings, but he makes no mention of the AMT.
And Herman Cain, by saying he would throw out the current tax code and replace it with his 9-9-9 would, by that action, abolish the AMT.
The JEC report concludes with this honest statement, "Fundamentally, the AMT was not about revenue but about symbolism — the resentment of many taxpayers at a few people with high incomes paying no federal income tax."
Then, the report throws out this caution, "... the AMT was enacted as an attempt to target the rich but has become a tax on parts of the middle class. If nothing is done to reform the AMT, it eventually will become the dominant type of income tax."
As we approach another major election year, with little or no discussion of abolishing the Alternative Minimum Tax system, the best we can hope for is that in the waning days of this session Congress will, once again, raise the AMT deductible for tax year 2011.
The Americans who pay income taxes will continue to be squeezed to the limit by politicians in the name of symbolism. The JEC report says of this symbolism, "The price of the AMT has been a significant increase in the complexity of the tax code. Even those who think that the symbolism justifies the price must acknowledge that the AMT has failed to achieve its goal. A minuscule proportion of people with high incomes continue to pay no federal income tax."
© Jim Terry
October 25, 2011
In the political rhetoric now being spit out by the candidates for president, one topic is receiving little discussion.
One of the most egregious laws, and one which illustrates why government should be cautiously called upon to solve problems, or perceived problems, was first passed in 1969 in response to a perceived problem with the tax code.
In May 2001, the Joint Economic Committee (JEC) of the U.S. Congress issued a report titled The Alternative Minimum Tax for Individuals: A Growing Burden. You can read the report at: http://www.house.gov/jec/tax/amt.pdf.
The report details the history of the Alternative Minimum Tax (AMT) and calls it a, "...separate system of income taxation that operates in parallel to the regular income tax. Taxpayers who may be affected by the AMT must recalculate their taxes using rules about income and deductions different from those that apply to regular income tax." The AMT has also been called the stealth tax. A better name would be the bait and switch tax or the legal government robbery tax.
In 1969, in response to testimony from the Secretary of Treasury, Congress enacted a minimum tax. The problem the Secretary raised: that of the 71.1 million individual tax filers in 1967, 155 with income over $200,000 paid no income tax. That equates to .000218% of tax filers. When that information became public, the report goes on to say, "Although the minimum tax was small potatoes in terms of the revenue it yielded, it was a hot potato politically: in 1969, more people had written to Congress to complain about the 155 people who paid no income tax than had written about the Vietnam war."
The JEC report points out the AMT victimizes tax payers in two ways: directly, through higher taxes, and indirectly, through tax preparation because of the AMT's tedious calculations above and beyond the underlying tax reporting. The JEC report estimates the cost of additional time spent by taxpayers in the 1997 tax year for filling out AMT forms at $360 million dollars. That is $2.4 billion in 2011 dollars.
The imposition of an alternate tax system to catch 155 people seems inane when we consider the estimated 1.3 million tax filers directly or indirectly affected by the AMT in 2000. And it is insane now that we know more than half of U.S. households paid no income tax in 2009.
Instead of insuring a minuscule number of Americans would pay some income tax, the original stated goal of the minimum tax, the AMT has merely extended higher tax payments to millions of Americans including a few whose annual incomes fall below $75,000. And a Congressional Budget Office (CBO) report, The Individual Alternative Minimum Tax, January 15, 2010, says, "...that tax structure (the AMT) is more likely to affect married couples, large families, and taxpayers in states with high state and local taxes."
The CBO report says that 4 million tax filers were affected by AMT in 2009 and predicted that if the patch which expired in 2009 was not reenacted, or a new patch not passed into law, 27 million taxpayers would be caught in the snare of the AMT in 2010.
The JEC report of 2001 lists eighteen major changes to the minimum tax laws from 1969 to 2001. The AMT is not indexed for inflation. Therefore, in addition to the eighteen major changes, Congress has patched the AMT, increasing the AMT deductible, numerous times over the years in order to keep the tax from victimizing an increasingly exploding population of middle class taxpayers who were not the stated intended targets.
The JEC report makes a lame attempt to absolve Congress regarding the AMT:
-
The history of the AMT illustrates the need to think about unintended consequences before imposing any new tax.... If taxpayers and Congress could have foreseen in 1969 how the minimum tax would turn out, it is doubtful they would have approved of it.
What are the current presidential candidates saying about the AMT in 2011?
President Obama recently said he wants to impose a new minimum tax on wealthy people, but that is not unexpected from the traditional tax and spend liberal who thrives on class warfare.
Governor Mitt Romney's Believe in America: Mitt Romney's Plan For Jobs and Economic Growth, makes one reference to the AMT, "If current tax rates are maintained and the Alternative Minimum Tax is patched, revenues will match their 18-percent-of- GDP historical average within a decade." He doesn't mention a plan to abolish AMT.
Governor Rick Perry has not discussed the AMT and there is no mention of it on his web site. However, he recently announced a new proposal to scrap the current income tax system and impose a flat tax, which would probably abolish the AMT.
Speaker Newt Gingrich does not speak directly to the AMT in his financial proposals. He proposes an optional 15% tax rate for individuals.
Senator Rick Santorum makes no mention of the AMT on his web site.
Congresswoman Michelle Bachmann's plan for prosperity merely states, "fix the AMT," She doesn't define what 'fix' means.
Governor Jon Huntsman plainly says he would abolish the AMT, eliminate all deductions and set up a new system of tax rates of 8%, 14% and 23%. He would also eliminate the capital gains tax and the taxes on dividends.
Representative Ron Paul says he would lower the corporate tax rate to 15%, make the Bush tax cuts permanent, abolish the estate tax and taxes on personal savings, but he makes no mention of the AMT.
And Herman Cain, by saying he would throw out the current tax code and replace it with his 9-9-9 would, by that action, abolish the AMT.
The JEC report concludes with this honest statement, "Fundamentally, the AMT was not about revenue but about symbolism — the resentment of many taxpayers at a few people with high incomes paying no federal income tax."
Then, the report throws out this caution, "... the AMT was enacted as an attempt to target the rich but has become a tax on parts of the middle class. If nothing is done to reform the AMT, it eventually will become the dominant type of income tax."
As we approach another major election year, with little or no discussion of abolishing the Alternative Minimum Tax system, the best we can hope for is that in the waning days of this session Congress will, once again, raise the AMT deductible for tax year 2011.
The Americans who pay income taxes will continue to be squeezed to the limit by politicians in the name of symbolism. The JEC report says of this symbolism, "The price of the AMT has been a significant increase in the complexity of the tax code. Even those who think that the symbolism justifies the price must acknowledge that the AMT has failed to achieve its goal. A minuscule proportion of people with high incomes continue to pay no federal income tax."
© Jim Terry
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