The Day: 93,600 In Region May Dodge AMT Bullet

The U.S. House of Representatives voted 226-193 Wednesday for a temporary tax-code fix that would save millions of middle-class taxpayers, including about 93,600 in southeastern Connecticut, more than $50 billion.

The tax-code amendment, favored by Democrats including U.S. Rep. Joe Courtney of the 2nd District, as well as most Republicans, would alter how the Alternative Minimum Tax is calculated. The bill now goes to the U.S. Senate, which previously passed a version of the so-called AMT patch but did not include a way to pay for it.

“All this points out that tax reform is going to be on the horizon in this country as we elect a new president,” Courtney said in a phone interview from Washington. “We can't keep going on like this.”

House Democrats have called for fixing the AMT with a pay-as-you-go plan that includes offsets that will raise levies on multinational corporations and the wealthy seeking tax shelters. Republicans have said that no offset is necessary — an argument that Democrats say is tantamount to allowing the federal debt of more than $9 trillion to balloon even more.

Meanwhile, the Internal Revenue Service has said delays in implementing a minimum-tax fix likely will delay the processing of returns and refund checks.

Congress passed the AMT in the 1960s after an uproar over the number of corporations and wealthy individuals — including 21 millionaires — who used a string of deductions to avoid paying any federal taxes. But now the tax has begun to affect middle-class people because the income triggers were never changed to account for inflation.

The National Taxpayers Union, which lobbies for lower taxes across the board and has supported various tax simplification efforts, said Wednesday that it never favored the AMT and has argued for its repeal. It favors efforts to reduce the burden on middle-class taxpayers but not at the expense of other taxpayers.

“There are other places where spending could be cut without shifting the burden to individuals or corporations,” said Natasha Altamirano, communications manager for the taxpayers' group.
The AMT kicks in for individuals with annual incomes in the $115,000 range, and for married couples who earn about $150,000, though people with lower incomes can be affected if they have big deductions.

The Tax Policy Institute calculates that without a change in the tax law, 39 million people will be paying the AMT by 2017. This compares to the 4 million taxpayers affected last year and the 20,000 who originally had to pay the tax in 1970.

It is estimated that by 2010, nearly half of taxpayers earning from $75,000 to $100,000 would owe the tax if Congress doesn't alter the law. In the same year, more than 80 percent of taxpayers earning between $100,000 and $200,000 would be in the same boat.

Ironically, one factor contributing to more people facing the AMT was the series of Republican tax cuts enacted starting in 2001. The cuts offered higher deductions for people with children, which is why married couples are 15 times more likely to be affected by the minimum tax than singles.

“The tax cuts enacted are starting to hit the rest of the tax code, and are pushing more people into AMT status,” Courtney said.

The average taxpayer who must pay the AMT this year faces nearly $3,000 in extra payments. People from high-tax states like Connecticut are more likely to be affected by the tax because of deductions allowed on federal returns to offset state and local taxes.

Connecticut ranks No. 18 out of 50 states in AMT liability, with nearly 445,000 people affected, but since Connecticut is one of the smaller states by population, the effect here is even greater than the raw numbers might suggest.

The Day, By Lee Howard, 12/13/07