The Alternative Minimum Tax
A Massive Middle-Class Tax Increase

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JULY 2007 - The AICPA recently held its biennial lobbying day in Washington, D.C., and—as a participant—I’m pleased to report that the AICPA Council members from New York saw 12 members of the New York Congressional delegation. That’s good news for New Yorkers and New York State CPAs. It means that issues that are important to you are being communicated to members of Congress, and that New York interests are being well represented.

It may come as no surprise that the alternative minimum tax (AMT) was one of the most talked-about issues at this event. (For a full discussion of the AMT and its adverse effects on New Yorkers and the nation, see my March column, “Muddy Waters: The AMT and the U.S. Tax Code,” online at New York Congressional leaders were eager to solve the burgeoning AMT threat.

The Essence of the AMT’s Future Impact

Members of Congress know the AMT was originally intended to ensure that high-income individuals could not use deductions and exemptions to completely eliminate their tax liability. They know that only 20,000 people paid the AMT in 1970, and that, without legislation, about 20 million taxpayers will pay it this year, with an average additional tax of nearly $3,000. And they know that if the tax code doesn’t change, as many as 33 million taxpayers may be paying additional taxes under the AMT by 2010.

Less clear, however, seemed to be the very essence of what the AMT will soon become: a massive middle-class tax increase.

Of course, there may be nothing inherently wrong with incremental tax increases. As inflation and costs rise, taxes need to follow suit so the government can pay for the services taxpayers need or have come to expect. But what appears to have been lost in the debate on Capitol Hill was that the AMT is set to explode on the middle class in a very nonincremental, nontransparent way.

Normally, when politicians increase taxes to pay for government services or social programs, taxpayers can see the increased tax burden coming, evaluate their representatives’ decisions, and then decide how to vote. In this way, politicians are accountable to the voting booth, and American government truly is “of the people, by the people, and for the people.”

But there is nothing transparent about the AMT. Most taxpayers don’t understand what the AMT is, how to calculate it, or why they have to pay it in the first place—making the AMT a sneaky, hidden tax.

A Call to Revise or Repeal the AMT

CPAs are the professionals people trust most when it comes to their taxes. Preparers do more than just complete tax returns; they occupy a key niche in the taxation ecosystem and are well positioned to diagnose its ills. This means communicating systemic problems to legislators and advocating for change where it’s needed.

I encourage all Society members to write or e-mail your Congressperson and explain just how important it is that the AMT be revised or repealed. Income taxes should be transparent to taxpayers so they can understand what portion of their earnings is paid to fund the federal government. Congressional contact information can be found on the Society’s website——by clicking “Government Affairs,” then “Contact Your Elected Representative.”

Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA




















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