Without a change to current law, millions of American families will begin the new year with a rather costly and unwelcome gift delivered courtesy of the IRS.
In the absence of an alternative minimum tax fix, roughly 28 million taxpayers — about a third of all those who pay income taxes — will see their bill skyrocket.
The AMT hike translates roughly to an average increase of more than $3,200. To put this number in perspective, President Barack Obama’s proposed tax increases on the highest earners are set to bring in about $80 billion in additional revenues next year. The AMT hike will amount to $92 billion.
Created in 1969, the AMT is a parallel tax system originally intended to ensure that a small number of high-income households paid income tax. To this end, AMT rules prevent taxpayers from taking a number of popular deductions, including itemized deductions for state and local taxes, personal exemptions and other miscellaneous itemized deductions. In doing so, the AMT guarantees that certain households cannot deduct their way out of income taxes altogether.
Unfortunately, when the AMT was created, the income thresholds were not adjusted for inflation. Because of this, the AMT’s original income thresholds now threaten to capture millions of middle-income Americans. Over the decades, there have been a number of AMT “fixes” enacted into law to address this issue. The last such fix expired at the end of 2011.
Furthermore, as the AMT does not allow for a deduction of state and local taxes, residents of certain areas of the country are disproportionately affected by the tax. My home state of New Jersey, along with California and New York, are the top three states affected by the AMT in terms of number of filers per state. According to the Congressional Research Service, in New Jersey alone, this year nearly 2.2 million tax returns could be subject to the AMT.
But the AMT is by no means a parochial issue. In the absence of a fix, taxpayers in every state will be affected, especially taxpayers in certain demographics, such as married couples and those with large families.
The coming AMTmageddon is shaping up to be a logistical nightmare for the IRS. To prepare for the influx of tax returns, the IRS must pre-program its computer systems to reflect current tax law. This is impossible to do if there is uncertainty regarding the law.
Let me be frank: I do not have any sympathy for the IRS. I do, however, have much empathy for the taxpayer. In a recent letter to the Senate Finance Committee, acting IRS Commissioner Steven T. Miller wrote that “there would be serious repercussions for taxpayers” if there is no AMT patch enacted by the end of the year. Because of other rules associated with the AMT, the IRS expects that without a fix, the returns of more than 60 million taxpayers could be affected by delayed filing, increased tax liabilities and slower refunds.
Given our nation’s economic health — and the millions of small businesses, individuals and families struggling to make ends meet — Congress must address the AMT extension to provide tax certainty and prevent a catastrophic tax hike.
Leaders from military and veterans service organizations joined Sens. Roger Wicker, R-Miss., Kelly Ayotte , R-N.H., and Lindsey Graham, R-S.C., at a press conference to urge the Senate to replace a provision in the budget proposal that cuts retirement benefits for veterans. Wicker, Ayotee, and Graham earlier called for a bipartisan solution to replace the $6.3 billion in cuts to military retiree benefits.
Each year since 1990, CQ Roll Call has reviewed the financial disclosures of all 541 senators, representatives and delegates to determine the 50 richest members of Congress. This year's report, derived from forms covering the calendar year 2012, shows it took a net worth of $6.67 million to crack the exclusive club.