Q: What is the Alternative Minimum Tax (AMT)?
A: If you would ask some 3.8 million U.S. taxpayers who were snared by the parallel tax system in 2004, they likely would none too subtly suggest the AMT is an Absolutely Maddening Tax. First installed by Congress back in 1969, the AMT created a two-tier tax system that essentially pieced together a back-up tax to ensure the wealthiest taxpayers among us didn’t evade income taxes altogether through legitimate use of tax shelters, loopholes and deductions in the labyrinthine federal tax code. Alas the road to tax fairness is paved with good intentions. But this one has created a giant-sized pothole that’s going to drive middle-income taxpayers batty. Unlike the federal income tax, the AMT is not indexed for inflation. That means more and more middle-income taxpayers are being slapped with higher tax rates and fewer exemptions, credits and deductions as they fall under the creeping shadow of the 36-year-old stealth tax. On top of the unfair tax burden is its mind-boggling complexity. No wonder the AMT is causing major heartburn among more and more families across America, especially those who live in high-tax states and have three or more children. That’s because the AMT causes taxpayers to lose standard deductions for state and local tax payments and personal exemptions, including spouses and children. And the prognosis only gets worse. Under current law, the AMT would ensnare 20 million families in 2006 and reach 35 million within five years. This is a ticking tax time bomb that lawmakers need to defuse sooner rather than later. And I’d just as soon pull the plug on it altogether.
Q: What are the prospects for repealing the AMT?
A: As chairman of the tax-writing U.S. Senate Finance Committee, I’m leading a bipartisan charge in Congress to get the job done this year. However, as unpopular as the AMT is among taxpayers and policymakers, it’s not going to be easy to simply erase the federal tax from the books. That’s because the AMT is set to bring in upwards of $600 billion over the next decade to the Federal Treasury. As lawmakers search for ways to rein in deficit spending, it won’t be easy to replace the revenue anticipated from the AMT. However, it’s just as important that we avert a virtual meltdown among middle-income taxpayers. At a congressional hearing I held in May to examine the AMT, one witness testified it would "catch a lot of people who have no idea they are going to be caught." We don’t need millions of hard-working families getting blindsided by the AMT like deer in the headlights. Repealing the AMT now would put lawmakers on notice to either trim federal spending by a like amount or recapture the revenue from those the AMT was intended to tax in the first place. I agree the tax code has a thicket of problems requiring attention, but this is one of the thorniest. That’s why I’m wielding a bipartisan axe to get the job done once and for all. The AMT creates more harm than good.