Average Folks Need Rescue From Alternative-minimum-tax Menace
The mere end of tax season brings a measure of relief for each of us, as an arduous burden is over for another year. Unfortunately, this fleeting relief actually does a disservice, lulling many into a temporary complacency. While most Americans aren't pondering what they will owe the government next year, a serious financial threat is looming over them. Indeed, for millions of people, the next tax season could be worse than they ever imagined.
The alternative minimum tax was created in 1969 to prevent the very wealthiest people from circumventing their tax obligations. Unfortunately, what was a noble effort to ensure that everyone paid his fair share has mutated into a real danger for many Americans -- potentially forcing middle-class families to pay thousands of extra dollars in federal income taxes.
Today the AMT touches 4 million taxpayers, but it is expected to reach 23 million more households next year and 50 million by 2016 if Congress doesn't act soon. Projections indicate that in my congressional district alone, an additional 104,000 people will be subject to the tax in 2008, many of whom earn less than $100,000 -- like firefighters and teachers who don't have Swiss bank accounts to avoid paying taxes.
How did this happen?
By law, taxpayers have to pay the higher of two taxes -- either their regular income tax or the AMT. But because the AMT was never adjusted for inflation and the tax policies of 2001 and 2003 cut in come taxes so deeply for the wealthiest few, millions more middle-class taxpayers will be forced to pay the AMT-- contributing to the biggest tax increase on the middle class in the history of our country.
The AMT is particularly insidious because it penalizes families with children by taking away exemptions for dependents. The more children you have, the higher your AMT burden. AMT inclusion for married families with two or more children and an income between $75,000 and $100,000 will increase dramatically from less than 1 percent in 2006 to 89 percent in 2010. Remember that the next time someone in Washington prattles on about the importance of family.
Another reason you may endure the AMT is because you pay thou sands of dollars in property taxes on the home you worked hard to purchase. Property tax isn't deductible against the AMT, and in a state like New Jersey this is cause for acute concern. Because of this, more than 530,000 New Jersey taxpayers making less than $100,000 will be sucked into paying, on average, an additional $4,000 next year. Remember that the next time someone in Washington prattles on about the importance of homeow nership.
You shouldn't have to get a di vorce, give up your children for adoption and sell your home to escape an unfair federal tax code. And the new Democratic Congress understands this.
Indeed, congressional action is on its way. We warned President Bush about the AMT in 2001, but instead of heeding our call, he continued to cut taxes for the rich and exacerbate the problem. Thanks to a recent election, however, he now has to listen.
Discussions about exempting all families making less than $250,000 from the AMT and significantly lowering the AMT for those between $250,000 and $500,000 are already under way. Indexing AMT for inflation, obviously, is another key component.
Common sense and fairness often make for wise policy, and the fact is that asking 30 million people to pay higher taxes so that the richest 1 million people can get a tax break is neither fair nor prudent. It's wrong, and we're going to end it.
We are committed to easing the tax burden on middle-income earners, providing necessary relief to millions who are already struggling against the income-diminishing ef fects of higher health care costs, college tuition and gas prices. This isn't just restoring balance and equity to the tax code; it speaks to who we are as a nation.
For six years, our domestic policy has been focused solely on increasing the fortunes of the fortunate. Now we must help the rest.
I am confident that a budget- neutral consensus will be reached that provides tax relief to those who need it. This is one of the highest priorities for the new Congress, and we must deliver. If we don't, we will feel the wrath of the American people come April 15, 2008.
Rep. Bill Pascrell Jr., D-Paterson, represents the 8th Congressional District.