THE PARALLEL UNIVERSE OF THE ALTERNATIVE MINIMUM TAX

It is most doubtful than any of us will ride on the Starship Enterprise, but there is a parallel universe waiting for millions of Americans. It is as frightening and unexpected as any parallel world visited by Captain Kirk. It is a ticking time bomb that was enacted in 1969 to catch wealthy taxpayers who found ways to avoid paying any tax. Since this particular item was never indexed for inflation or rising wages (and 36 years is a lot of inflation) it is going to explode and injure millions of middle-class taxpayers, some making as little as $70,000. In case you haven’t yet had the pleasure, I’d like to introduce you to the Alternative Minimum Tax.


The AMT (also known as the stealth tax) is the tax that enables the government to collect billions of dollars from the middle-class in order to preserve Bush’s tax cuts for the wealthiest Americans. I like to call it by its true name, the Alternative MAXIMUM Tax because when compared with what you owe using the traditional tax code, you pay whichever one costs you more. Instead of making the wealthy pay a minimum tax, it imposes the maximum on the middle class.


You enter this parallel universe by having too much in tax avoidance items. These include those dastardly exemptions known as your children, state and property taxes, medical deductions, interest on home equity loans, payments to your accountant, long term capital gains, and other itemized expenses. These “tax shelters” are disallowed and the only deduction you have left is the interest on your mortgage. Heaven help the family that lives in a high tax state such as California or New York, has several children, or had the bad taste to become ill and accumulate huge medical bills. YOU ARE A TAX AVOIDER and must pay the AMT. The sophisticated tax shelters and dubious “partnerships” that enabled the wealthy in 1969 to avoid the payment of any tax has been transformed into any and all deductions that a normal family is entitled to under the traditional tax code.


Since Congress had been making temporary “fixes,” the AMT has not devoured the middle and upper middle-class wholesale. This year, about 4 million taxpayers will be thrown into this alternate universe. Unfortunately, Congress has allowed the “fix” to end and next year 19 million taxpayers will be hit and 33 million by 2010. Since most of these taxpayers have families, it really means a third of our population will pay the AMT. Ironically, very few wealthy people are subject to the AMT (their accountants had 36 years to figure our how to avoid it) but the majority of those making as little as $75,000 to $100,000 will fall under the AMT if Congress does not change the rules.


A sane person might ask why Congress doesn’t just repeal the AMT. The answer is simple. Congress will not act to relieve the middle-class of this burden because their priority is to extend the tax cuts (including the repeal of the estate tax) for the wealthy. Without the billions of dollars in additional taxes the AMT generates from the middle and upper middle-class, the deficit would obviously be even greater. I can’t help but wonder if the middle-class Republican will ever decide his own economic welfare is more important than the gender of the couple down the street.


While we wait for our accountants to tell us if we fall into the parallel universe of the AMT, I have only one last thought. The taxman truly cometh.


-Marlene Rose