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Posted by on Nov 11, 2006 in At TMV | 15 comments

Fixing It

The Democrats plan on doing something about the AMT:

Democratic leaders this week vowed to make the alternative minimum tax a centerpiece of next year’s budget debate, saying the levy threatens to unfairly increase tax bills for millions of middle-class families by the end of the decade.

The complex and expensive tax was designed to prevent the super-rich from using deductions, credits and other shelters to avoid paying the Internal Revenue Service. But because of rising incomes, the tax is expected to expand to more than 30 million taxpayers in 2010 from 3.8 million mostly well-off households in 2006.
Rep. Charles B. Rangel (D-N.Y.), the presumptive chairman of the tax-writing House Ways and Means Committee, this week put fixing the AMT at the top of his agenda, calling it far more urgent than dealing with President Bush’s request to extend the 2001 and 2003 tax cuts, which are scheduled to expire in 2010.


The focus on the AMT is hardly surprising, given that victims of the tax have been concentrated in high-cost urban areas such as Washington, New York and San Francisco — places that tend to vote Democratic. Rangel, Hoyer and Nancy Pelosi (D-Calif.), the presumptive House speaker, all represent states hit hard by the AMT, which is sometimes called the “blue-state tax.” To map states with the highest concentrations of AMT taxpayers is to draw bull’s-eyes over California and the Northeastern seaboard.

Locally, an estimated 240,000 families and individuals in the District, Maryland and Virginia will have to pay the AMT at tax time in April, according to projections by the nonprofit Citizens for Tax Justice. That is an increase of nearly 100,000 local families since 2003.

These taxpayers would owe the IRS $6,813 in additional taxes on average, according to an analysis by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.

Any thoughts from our American readers on this? I must admit that – being Dutch and all – I am not very educated in the kind of taxes you all have, the impact they have, etc.

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  • bellisaurius

    This’ll be interesting. The democrats will be giving this, which will essentially be a tax cut, and repealing Bush’s tax cuts. That’s going to hurt the republicans.

    I’m not sure what the balance of those two taxes will be, but I have a hunch it will be close.

  • Lynx

    I’d also like to know the effect of this. As an ex-SF resident, I know what it’s like to live in a high-cost area. A side effect is that though you may earn more than others in the country, you live no better than them because of the high price of everything (especially housing). I wonder if this new move could help the middle class in San Francisco and other high cost urban areas, but also have the side effect of helping upper class people in cheaper areas.

  • superdestroyer

    I guess this will be the first test of the “water carrying” meme. Will Air America, Keith Olbermann, Ed Schultz, etc criticize this move as a tax cut for the wealthy (those earning incomes over $100,000 or will the repeat the spin put out by the DNC.

  • Rudi

    superdestroyer – This isn’t a tax cut for the rich. The Republicans avoided using this tax as a issue, it is to complex for cable sound bites. How about Limpbaugh the “Truthteller”? The history and implimentation of this tax is also to complicated for short posts and comments.

  • BeYourGuest

    Republicans waged an expensive war and created an expensive new drug benefit entitlement.

    Oh, and they also cut taxes!!

  • bellisaurius

    OK. Let’s take a look at the AMT. Roughly spaking, a married couple, each of which are making 40,000 a year may be liable. The incomes put them roughly in the upper middle class. Not rich, but not hurting.

    The AMT sets it up that they pay a minimum of 27% of their income. It removes deductions for capital gains, depreciation, and some tax exempt incomes.

    Oh, this isn’t speaking for or against, I’m just presenting it in common temrs.

  • Andrew

    bellisaurius is basically correct.

    Like the minimum wage, the AMT should have been pegged to inflation, but wasn’t, and so now we have people who were not the intended target subject to the tax.

  • dittohead


    This is absilutely wrong. Keeping the AMT is the way Republicans plasn to cut deficits. How else can we pay for the tax cuts for the upper 1%? Once again the Democrats are engaged in clas war! They think that teachers and fireman and nurses should get a break on the backs of the Paris Hiltons of this great country. Socialism is the only word!

  • Pyst

    Bring on the class warfare, turnabouts fair play for the rich getting a 6 year long free ride.

    Time to pay for the war since the rich sure didn’t send the US army any of their kids.

  • C Stanley

    The trouble is that we tax income instead of consumption. Unfortunately the Fair Tax proposal is probably now dead, at least for a while. I think the Democrats are right to look at the Alt Min tax, but they will have to answer the same question that they’ve asked the GOP for the last six years: “How do you intend to pay for this tax cut?”

  • Eric

    And lets not overlook the reason this tax doesn’t affect the “rich”. They already pay a much higher tax rate than this. Tax cut for the rich my ass

  • grognard

    I agree with CS, a consumption tax would be the best way of taxation, at least in theory. The income tax system is so open to congressional abuse with special tax provisions for groups of taxpayers, sometimes down to only one taxpayer, that it needs to be “overhauled� into non existence. The same tax rate [retail or VAT] everyone, and no opening for congress to grant favors by changing provisions. The problem is that for people like Pyst who live in high income/high cost areas is that they would be paying more in tax, but without the lifestyle to go with it. The other problem is that lower income people would be paying a higher percentage of their income on taxes, something that would have to be offset in some way, perhaps refunds.

  • jpe

    If you don’t think a VAT can be subject to the same morass of special exemptions and sweetheart deals that characterizes the income tax, you’re out of your mind. It’s probably more likely to be manipulated, since a VAT will hit corporations, and they’ll lobby hard to make a VAT regime look like swiss cheese.

  • C Stanley

    The Fair Tax isn’t a value added tax; it’s a national retail sales tax, with rebates for nondiscretionary spending to make it progressive.

    On the point that grognard brought up about regional differences in cost of living, I think that the Fair Tax would help equalize this too, because income isn’t taxed. Thus, the higher incomes that the market tends to create in regions like the Pacific NW really do give the taxpayer higher spending power, since tax isn’t taken off the top. The fact that this person pays the same retail sales tax rate for discretionary consumption as someone in Mississippi isn’t a problem because (in a healthy economy at least), salary ranges will be higher in Portland than in Pascagoula.

  • grognard

    jpe, yes a VAT would hit corporations and they could play games with it, but the corporations have the time and money for lobbyists and/or campaign donations, so let them battle it out. Eventually they would see that there was no end to the game and call a truce. Another possibility might be a straight percentage of the gross tax. Personally I prefer a straight retail tax, any increased spending would be directly applied as an increase and the politicians would have to justify it. If the economy does better, more tax revenue, an incentive to keep things humming.

    CS, good point on higher cost areas, I think that in addition you would have rebates for lower income people to offset their tax burden, poorer areas would have less of a hit to an already struggling economy.
    I do admit that I have reservations about congress determining what is or is not discretionary spending, unfortunately past history tells me that this would give them an opening for shenanigans. It is for this reason I still like a straight tax with rebates.

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