AMT Has Failed Taxpayers

As Tax Day (which is April 17th this year) approaches, many of us are working on putting together our tax returns.  And we will likely encounter an outdated tax that should have been ended years ago.  The Alternative Minimum Tax (AMT) was put in nearly 40 years ago to target fewer than 200 wealthy Americans who managed to legally avoid paying ANY income taxes.  But, here we are in 2007 and that tax now affects taxpayers in income brackets that dip into the $20,000 annual income range.  The AMT is the tax paid when the government determines through a complicated formula that you haven’t paid enough federal tax in relation to your income.  While it may have worked in 1969, it’s now failing in its original intent.  Right now taxpayers who don’t qualify in any way as wealthy are subjected to it. 

A couple of examples:
* A single parent with three children making less than $100,000 was eligible to file a simple tax return because he/she had no itemized deductions.  The fact he/she claimed children as dependents required he/she to pay the AMT.

* A married couple with four children and one in college both worked outside the home.  They were required to pay AMT equal to their entire interest and dividend income for the year, in effect, invoking a 100% penalty for wisely investing their hard-earned money.

In my home state of Idaho, tax statistics from 2005 demonstrate the alarming trend that the AMT is proving onerous on those who don’t deserve it.  Nearly 9,800 Idaho returns were subject to the AMT, but only 172 of those had an adjusted gross income of over $1,000,000, which is the target group for whom the tax was originally established.  That means that at least 9,600 taxpayers in Idaho were unfairly affected by this tax. The AMT is a 26 percent regressive tax and was never intended to reach middle-class taxpayers, but that’s what it is doing now and it will only get worse in the future.

It’s time to repeal this tax.  It cannot wait another year because every year it brings in more revenue (unfairly) and that makes the offset more and more difficult to achieve.  I’ve joined with Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley in sponsoring a bill to repeal the tax.