Posted on 03/14/2005 11:50:29 AM PST by Potemkin54b
Mr. Bush's Stealthy Tax Increase
President Bush is presiding over a big middle-class tax hike.
As recently as 2000, only about one million taxpayers owed the alternative minimum tax, created by a provision in the federal tax code that is supposed to prevent multimillionaires from using loopholes to avoid paying their fair share. But by the time Americans file their 2005 taxes, some 3 million taxpayers will owe the alternative tax and by 2010, nearly 30 million taxpayers will be hit - among them, a staggering 94 percent of married filers who have children and make $75,000 to $100,000.
Big families in high-tax states - New York, New Jersey, California and Massachusetts - will bear the heaviest burden, largely because the alternative tax increasingly disallows write-offs for dependents, state income taxes and local property taxes. On average, by 2010, people who make under $100,000 and owe the alternative tax will pay an additional $1,321 in federal income taxes, while alternative tax payers who make between $100,000 and $200,000 will owe an additional $2,592.
Meanwhile, and most outrageous, only 35 percent of taxpayers who earn $1 million or more will owe the alternative tax. •
Why does the alternative tax increasingly afflict middle-rung taxpayers for whom it was never intended, while largely ignoring the highest-end taxpayers it is meant for?
First, the alternative tax is not adjusted for inflation, so over time, more and more middle-income taxpayers find themselves owing it.
Second, and crucially important, is the interplay of the alternative tax and Mr. Bush's first-term tax cuts. When the tax cuts were enacted, no long-term corresponding changes were made to the alternative tax system - even though the administration was well aware that was a recipe for disaster. Not only will many families that thought they were in for lower income taxes wind up feeling shortchanged, some will find that the Bush tax cuts have done nothing at all to cut their taxes.
Here's why: The alternative tax applies to people whose income tax bills are low relative to their income. So as tax cuts reduce the liability on a filer's Form 1040, the alternative tax kicks in. In effect, it claws back all or part of the supposed savings from the Bush tax cuts. By 2010, the Bush tax cuts alone will cause an additional 17 million taxpayers to owe the alternative tax. By 2014, assuming the Bush tax cuts are made permanent, 40 million taxpayers will owe the alternative tax, nearly half of whom would never have faced it but for the tax cuts.
Meanwhile, the people who should be paying the alternative tax do not. Mr. Bush's administration, more than any other, has bestowed tax breaks on wealthy investors in the form of superlow rates on capital gains and dividends. But the alternative tax system - which regards deductions for property taxes or state income taxes as a kind of tax shelter - does not recognize this preferential treatment of investment income. That is a huge loophole. The alternative tax, whose very purpose is to prevent excessive sheltering, ignores the biggest tax breaks of all: special, low rates on capital gains and dividends that allow investors to avoid paying tens of billions of dollars in taxes every year.
Ever since the first round of Bush tax cuts were enacted, Congress has passed temporary relief measures to keep most middle-income taxpayers from owing the alternative tax, but the problem is becoming too big, too fast, for stopgaps to keep working. Mr. Bush, for his part, says that he wants to shield the middle class from the alternative tax and that his tax reform commission will recommend a solution when it makes its report in July. •
But Mr. Bush needs the alternative tax - he relies on its projected revenue to mask the debilitating cost of making his tax cuts permanent. Congressional estimates say that extending them permanently will cost $281 billion in 2014. But that estimate assumes that nothing will be done to prevent the alternative tax from further burdening the middle class. If the middle class is fully protected, the cost of extending the tax cuts will mushroom to $356 billion - 27 percent higher than the official estimate. The federal budget deficit would explode.
The obvious answer is to restore the alternative tax to its true antisheltering purpose, by making inflation adjustments that will exempt the middle class once and for all and by fully taxing capital gains and dividends under the alternative system. But Congress and the administration are currently heading in precisely the wrong direction. The Bush tax breaks for investment income are scheduled to expire in 2008, but both the president and Congressional leaders are calling for extending them, at least through 2010, while proposing no corresponding long-term change in the alternative tax. •
Bush administration officials and their antitax allies seem to believe that if taxpayers become angry enough at having to pay the alternative tax, they will throw their support behind any tax reform plan the administration puts forth. That is fomenting a crisis in order to appear to solve it. Is it too much to ask not to put the country through that kind of cynical exercise yet again?
Welcome to Free Republic. BTW, this is an EDITORIAL from the New York Slimes.
So, what do you think about this?
The NYT, worried about high taxes. Go figure.
New York, New Jersey, California and Massachusetts....cast how many electoral votes against Bush?
And wasn't it the upper-middle-class, two-income couples in these states who supplied the bulk of the contributions and volunteers to the Kerry campaign?
I have to admit, being able to tax only those who vote against you is quite a trick.
OMG!
My post beat yours by 1 second!
Wow!
So what's the down side?
Fine - if enough people are paying the AMT, there will be that many more people who will want it repealed, or who would support FairTax.
Welcome to Free Republic!!!
So since Bush actually raised our taxes, then I guess there's no worries about a deficit?
I would have beat you but I had to proofread!
This tax was enacted in 1969 by a Rat-controlled congress and guess who's fault it is !?!?! BUSH's !!!
If a married couple with no dependents claims the standard deduction, would they ever be subjected to the AMT regardless of their income? I would think not, but who knows?
George Bush could come out in favor of anything and the NYT would be against it. In fact if I'm not mistaken that amounts to their state policy.
It really is important to direct anger to the agency that causes the outrage. In this case you are correct, Congress should receive the brick bats. Likewise, don't hate the IRS, hate the Congress that created it.
The AMT is a horrible idea. Especially if you had stock options in your company and you never saw a dime from it. Maybe we ought to tax (or not tax) capital income at all. Stock options for employees should be counted as capital and not income, especially if you never saw a dime from it.
28% is hardly "superlow". Especially since Senator Kerry only paid 13% taxes on his income.
Some radio commentator, I cannot remember exactly who, predicted that this is what would happen. It seems that many MSM reporters and editors are gettong caught my ATM. I even heard NPR whining about this.
I got whacked with it a couple of years ago with declared income of less than $90,000.00 and asked my accountant wht people weren't up in amrs about it. He said it only affects people in California and NYC. That's fine. I will be laughing when it's catching middle class taxpayers in Kansas and Nebraska as well. What no one ever tells you, that surprisingly NPR did, is how much money AMT raises. That's why it is the elephant at the table that no one talks about. It is huge and ending it would absolutely bankrupt the Fed. Gov't. Maybe that's not a bad thing though so let it go on.
I used to rage about AMT until I was shown how to get my earnings (eventually) as "capital gains" instead of "income" so no more AMT. Ha ha ha, pay up foolios!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.