Alternative minimum tax could add to taxes of middle class
The alternative minimum tax, AMT, could raise the tax liability of many middle-class Americans by thousands of dollars if Congress continues to drag its feet on the matter.
AMT sought to close loopholes
The AMT was part of the Tax Reform Act of 1969. Its purpose was to ensure that the wealthiest Americans pay a minimum tax rate, and to prevent them from using deductions and loopholes to avoid paying taxes all together. However, since the AMT is not indexed to adjust for inflation, it has affected more and more Americans over the years. Now, it may be reaching firmly into the middle class.
According to Daily Finance, the AMT could add as much as $8,000 to the tax bills of millions of middle-class Americans for 2012.
Senator Susan Collins (R) of Maine said the AMT must be changed to account for inflation from year to year, without having to be addressed on an annual basis. Either that, she says, or it should be repealed.
Senate bill addresses AMT through 2013
Repeal may well be the goal of this rhetoric. However, a bill proposed by the Senate Finance Committee earlier this month would solve the issue for the next two years.
Before it went on vacation, the Senate Finance Committee proposed a bill to raise the bar for those who are affected by the AMT. However, many analysts believe the bill has scant chance of passing through the House of Representatives, especially in an election year that is filled with rhetoric about taxation to “job creators.”
As written, the bill would raise the AMT exemption from $45,000 to $78,750 for those filing joint returns for this year, and to $79,850 for 2013.
Daily Finance says a provision in the bill, extending tax credits for wind energy, will spark lengthy debate and slow its approval or rejection.
Racing toward the fiscal cliff
The AMT is only one issue facing taxpayers as we race like a collective Thelma and Louise toward the “fiscal cliff.” If Congress and the president do not move to change current laws, a plethora of tax issues will expire at the end of 2012 — An event that most economists say will have a devastating influence on the struggling economy.
The Bush-era tax cuts
At the heart of contention, and the reason for Congressional foot-dragging, is the Bush-era tax cuts. President Obama wants to retain the Bush tax cuts for low- and middle-earners. However, he wants to eliminate them for the wealthiest Americans. His Republican opposition, however, would like to retain all of the Bush tax cuts. However, as neither party is willing to compromise, the fiscal cliff gets closer and closer.
The tax payer, caught in the cross-fire, can only sit back and hope they survive.