Q: What is the Alternative Minimum Tax?
A: Virtually no one disputes the federal tax code is far too complex. Perhaps one of the biggest headaches in our tax laws is the Alternative Minimum Tax. An obscure provision initially passed three decades ago and updated in 1986, the AMT was written to ensure wealthy Americans wouldn’t get off scot-free come Tax Day through a series of large deductions or tax shelters. Basically, the AMT was designed to see that the super rich paid taxes on their income. However in recent years, this shadow tax system has unfairly taken its toll on middle-income taxpayers. The problem has worsened in recent years because incomes are on the rise, but the AMT isn’t adjusted for inflation. That means that middle income filers who are taking advantage of expanded exemptions, credits and deductions may be slapped with the burdensome and higher priced AMT. Under a complicated set of rules, affected taxpayers and corporations must spend the time, energy and resources necessary to compute their tax liability under both the AMT and the standard method and then pay the higher of the two. Under current law, projections show the number of individual returns subject to the higher AMT will jump to 3.1 million in four years. That’s up from 1.3 million this year. By 2010, the joint committee on taxation says 10 percent of all taxpayers will be dealing with the AMT
Q: Will Congress fix the AMT this year?
A: As chairman of the committee in charge of federal taxes in the U.S. Senate, I will work to repeal the AMT. This arcane tax system has dogged ordinary taxpayers for long enough. Iowa farmers will recall the nightmare unleashed in late 1996 when the IRS ignored congressional intent and issued a ruling that would have subjected farmers who used installment sales and deferral contracts to the AMT. Thankfully, I led a bipartisan effort in Congress that persuaded the IRS to hold off on its decision and ultimately won a permanent reversal through legislative means. In the last Congress, I co-sponsored legislation to protect moderate-income families who took advantage of expanded child care and education tax credits from getting penalized by the AMT. As more Americans take advantage of the HOPE college credit, Lifetime Learning credit, the $500 child credit and the dependent care tax credit, a greater share of the middle income will be negatively affected by the AMT. It’s time to close the door on this tax. What was designed 30 years ago to fill in a loophole has become a thorn in the side of average, middle-income taxpayers all across America.