When the Alternative Minimum Tax (AMT) was implemented in 1969, it was created so that the wealthy people in the United States couldn’t write off their deductions and pay nothing in taxes. This solution worked in the late sixties through the mid to late seventies, but it doesn’t work today. The reason why is because it wasn’t adjusted according to inflation. People are making more money today than they did in the seventies but a lot of it has to do with inflation. The dollar just isn’t worth as much. The lack of inflation adjustment and the growth of the economy has resulted in many more people paying the Alternative Minimum Tax that are not considered to be wealthy. In 2001, about 2,100,000 people had to pay the Alternative Minimum Tax. By 2010, about 16% or 40 million people will have to pay the tax. The tax rate increases to 28% for higher incomes. (For married taxpayers that file a separate return, the cutoff amount of income between the tax rates is $87,500.) If this tax (which I think is important) is not altered so that it adjusts to inflation, we will see considerable increases in our taxes which will slow down our economy. (If each of the 40million people made $87,500, they would end up paying $980 billion by themselves!)
3 comments:
The posts and comments here are all good.
There is no reason for the AMT not to be indexed. But, I wouldn't expect it to happen anytime soon. Bracket creep (the shift of payers to higher tax brackets by inflation, rather than by increasing real income) is an insidious problem that people don't tend to notice unless a lot of people are being bumped up simultaneously. Since we seem to understand how and why to keep inflation low, bracket creep in the AMT is likely to go unnoticed.
I'll also go out on the cynical limb and note that I don't think Congress is very interested in changing tax programs that are bringing in more money than they planned them to.
I agree with all of the posts so far. The AMT issue is definitely common knowledge to those setting the tax rates. And, I do agree that it's probably still at the same rate to increase tax revenues. I think that because the AMT in generally an unknown to the public, most people don't care about it. Politicians probably avoid talking too much about it because it doesn't affect the majority of their target audience. The upper income voters only make up a small percentage of the population, and how many lower income families are going to vote for a policy that gives the rich a tax break?
I do think this is a serious issue that needs to be addressed though. It's just another example of politics getting in the way of economics.
Note to students: PigInZen is someone from out on the internet who thought it important that you hear their side of the story.
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