The IRS is reminding taxpayers and Congress alike that if the annual “AMT patch” isn’t renewed before the end of the year, millions of taxpayers (28 million) would be on the hook for thousands more per person in tax payments.
But we need more than just a “patch”. We need to eliminate the AMT from the tax code. Here’s why:
The Alternative Minimum Tax (“AMT”) presents hardships to the practitioner as well as the taxpayer who prepares his own return by, as its name implies, imposing a second tax calculation mechanism on taxpayers. It serves virtually no useful purpose, other than the raising of an ever-increasing amount of tax revenue. But it has become very clear in recent years that this AMT tax revenue is not coming from just the taxpayers who were the intended targets of this tax.
However the AMT was seriously flawed from the outset. Instead of focusing on these loophole type preferences (which would have limited the tax to a very small number of tax law “abusers”), the law that was passed included items that were not loopholes at all. A convoluted formula compares the differences between income and deductions to determine who falls under the guidelines.
- Treating state and local taxes as a preference
- Treating miscellaneous deductions as a preference
- Allowing lower exemptions than the regular tax.
Each of these, however, can be quickly shown as inappropriate factors with which to base a tax system intended to just make sure everyone pays a “fair share” of tax.
- State and local taxes are hardly a loophole. The taxes exacted by state and local governments are hardly “voluntarily” paid by taxpayers in an attempt to avoid paying federal taxes.
- Miscellaneous deductions is the category of deductions that consists primarily of expenses incurred to earn income that is subject to tax. It includes unreimbursed employee expenses, investment expenses, etc. This is the most basic and important deduction needed to have a truly fair income tax system. For example, if an individual pays a lawyer a fee for collecting back wages, the legal fee is a miscellaneous deduction. If an individual pays the lawyer $300 for collecting $1000 of back pay, netting $700, the AMT would tax the individual on the full $1000.
- The exemption available under the AMT tax system is a fixed dollar amount which, unlike exemptions and standard deductions under the regular tax system, is not indexed for inflation. Furthermore, it is phased out entirely over certain income levels. And each year Congress has to approve an annual “patch”, which raises the threshold for inflation, in order to raise the exemption limits of the tax so that less wealthy taxpayers won’t be subject to the AMT.
It must be noted that the annual AMT patch is not a tax cut at all, but merely the avoidance of a massive tax increase on millions of middle-income taxpayers’ families. Congress likes to point to the patch as some major revenue loss, had the AMT been applied to those families, as an excuse to raise to raise taxes in order to offset this “potential missing tax revenue”.
The AMT in its present form has no place in tax law. The AMT does not serve the purpose for which it was intended and functions in a most inequitable manner while adding enormous compliance burdens. It should therefore be changed to eliminate the adjustments for state and local taxes and miscellaneous deductions, update its rates, and modify its exemption — or else the AMT needs to be eliminated completely.
crossposted at redstate.com/alanjoelny
In an interview a week before Election Day, President Obama declared that if he won again, it would be mandate for making cuts, but also for raising taxes on the highest income earners.
Reviewing Election Day exit poll data, however, tells a different story.
Looking at the voting patterns broken down by income earning amounts (based on 2011 total family income), there are only TWO categories out of six that Obama won more than 50% of the vote. Those are:
Under $30,000: Obama 63% Romney 35%
$30,000 – $49,999: Obama 57% Romney 42%
The other four out of the six categories had Romney with over 50% of the vote. Those are:
$50,000 – $99,999: Obama 46% Romney 52%
$100,000 – $199,999: Obama 44% Romney 54%
$200,000 – $249,999: Obama 47% Romney 52%
$250,000 or more: Obama 42% Romney 55%
The electorate that voted from Obama – voters whose households earned under $50,000 – are also the same citizens who pay the least amount of taxes. The voters who already pay the most in taxes voted for Romney.
The only “mandate to raise taxes”, therefore, comes from the population of taxpayers who prefer others to pay more in tax so they can continue to pay less. The only clear lesson from the election is that President Obama has created class warfare as it has never been seen before.
(crossposted at redstate.com/alanjoelny)
I was talking to a small business owner the other day. He said it made more sense to “to pay a $2,000 fine than buy $6,000 insurance policy” (per employee, of course).
But there is no “fine”. It’s a “tax”. Employers who do not provide the one-size-fits-all, government-approved insurance demanded by Obamacare are taxed. And we know it’s a tax because the Supreme Court said so–in fact, if it isn’t a tax, if there is any hint that not purchasing insurance was bad behavior, Obamacare is unconstitutional.
Conservatives, people of integrity should take care to describe this payment to the government accurately: it is a tax on perfectly legal and moral behavior, not a fine for bad behavior. When you hear someone refer to the payment as a fine or hear them denigrate a business who opts to pay the tax rather than purchase insurance, be sure to remind them what the Supreme Court said.
I’ve written several articles regarding the folly of Obamacare. This morning, I read a great piece on the need to keep ObamaCare and its impact at the forefront of our discussions .
The full implementation of the Affordable Care Act needs to be a major discussion in the coming months and years, especially in 2014 when every Democratic senator elected in 2008 on the coat-tails of Barack Obama may be branded as the deciding vote to corporatize — with government sanction and force — the mandatory use of seventeen hundredths of private property.
No, we cannot forget about Obamacare. When our expectation is to have the finest product available, at the expense of another person’s property; and when life is that product, it is impossible — by the laws of economics and the laws of logic — for our nation ever to maintain its prosperity. We will create a stagnant mediocrity, grant to a faceless human authority the power to determine how much life and quality of life is “acceptable,” and elevate our dependence on that authority until property is void, liberty is nostalgia, and self-propriety — i.e., life — is nothing more than a pluralistic determination of worth.
I urge you to read the article in its entirety.