You’re probably not a millionaire. You don’t live in a millionaire’s home or drive a millionaire’s car. But, hey, look on the bright side:
If Congress doesn’t act, you’ll soon get to pay a millionaire’s taxes.
Yes, we’re being sarcastic, but no, we’re not kidding. The tax code contains a buried land mine just waiting for middle-class taxpayers to step on it. Called the alternative minimum tax, it was created in 1969 to prevent just 155 wealthy people from “zeroing out” their tax liability through excessive credits and deductions.
Alas, the law was never adjusted for inflation — even though the consumer price index has risen by 566 percent since 1969. Additionally, two-income families are more common now than they were 38 years ago. That means a nominal income that truly would have signaled a wealthy family in 1969 now often means just a hard-working middle-class couple.
Without immediate reform, 21 million people are expected to be hit with the AMT in the current tax year, with an average tax hike of $2,000, according to Treasury Secretary Henry Paulson. Eighty-nine percent of married families with two or more children and incomes between $75,000 and $100,000 will be hammered by the AMT by 2010. By 2017, almost half of all taxpayers — 53 million — will be soaked by this levy. The tax will hit two-thirds of those making between $75,000 and $100,000 and 90 percent of those making $100,000 or more.
Such gouging of the middle class is outrageous. It’s also political suicide for any Congress dumb enough to allow it, which is why it’s been parried in the past by a series of one-year fixes. But this year, efforts to fix the AMT are caught up in partisan politics.
Thursday, Rep. Charles Rangel, chairman of the tax-writing House Ways and Means Committee, said he will propose a $48 billion tax increase on executives of hedge funds and private-equity firms as a way to pay for permanent repeal of the AMT. The New York Democrat said his proposal would more than double the tax rate on so-called carried interest, the compensation that executives at buyout and venture-capital firms, as well as real estate and oil and gas partnerships, receive for managing investments.
Besides reining in the AMT, Rangel’s proposal includes a tax-rate surcharge on wealthy households and a lower corporate rate. Paulson said the Bush administration opposes Rangel’s plans because they would “hinder America’s ability to compete in the global economy.”
But while tongues are wagging in Washington, the date when you will have to file your income taxes is drawing closer. It might be time to remind Colorado’s congressional delegation that you don’t deserve the huge tax increase now headed your way.
