But I did not hear word one from the Big O about AMT taxes. That is another set of tax laws that is subject to a sunset at the end of the year. This is a screwy tax (that I have been subject to for years). If one is subject to the AMT you lose deductibility of a number of things. Charitable contributions, property taxes and child-care deductions are lost. It is also dependent on the ratio of earned versus unearned income. It is an ugly tax that everyone will hate.
This a big deal. Congress has been putting a patch on this every year for the past five. The 2010 patch cost Treasury $70billion. According to the CBO, if the AMT is allowed to sunset it will increase the number of individuals that are subject to this tax from 4.5mm to 27mm in 2011. This would result in nearly every individual or family with income of $100k+ to pay more tax. The CBO estimate is for an increased tax bill of $3,900 per filer. That would come to $90 billion of additional tax. The vast majority of those making $250k or higher are already stuck in the AMT trap. Therefore the bulk of this increased tax burden would fall on those making between $100k and $250k.
Watch as this evolves over the next few months. Should we see the “Great Compromise” from D.C. where marginal taxes go up for the wealthy but no action is taken to address the AMT problem a significant percentage of the population will be screwed. When and if that happens you will hear that great sucking noise from the economy. When 30 odd million people get hit with another 4k in taxes the economy will stall, again.
Of course it could go the other way. We could extend the Bush tax cuts and “patch up” the AMT for a few more years. That would get the deficits north of 10% of GDP. Depending on the economy we would be looking at annual deficits pushing $2t. Debt would explode. I can’t see the upside in that either.
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Research suggests the most likely outcome is a reorganization of assets to recover the AMT penalty.
ReplyDeleteThe temporary $4000 penalty won't even put a dent in the housekeeper visits, or Starbuck's drinks. However cosmetic procedure providers might take a huge hit.
American families have to choose between eating and paying rent (the term is food insecurity, look it up) and you are moaning about $4000.
Barry weeps for you.
Read your posts over at Zero Hedge with regularity. I'm a tax attorney in private practice. Two cents: The current version of the Code is problematic because it is too complex. While the AMT is one sinkhole most people can wander into unawares, there are literally thousands of others. Leaving aside the issues regarding fairness or capital creation or even our yawning federal deficit, the income tax portion of the Code has ceased to do one of its two mandates: raise revenue and accurately measure income. Mainly due to its complexity.
ReplyDeleteCheers,
KYLE
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