NYSSCPA Offers Solution to Alternative Minimum Tax

NYSSCPA Offers Solution to Alternative Minimum Tax

FOR IMMEDIATE RELEASE

Contact: Lois Whitehead, Public Relations Manager
212-719-8405
lwhitehead@nysscpa.org

NEW YORK, NY, October 29, 2007 - The New York State Society of Certified Public Accountants (NYSSCPA) has a solution for eliminating the Alternative Minimum Tax (AMT), an additional federal tax that is burdening millions of middle income families.

Originally designed to target a small number of Americans who escaped income tax in 1969, the AMT will threaten 30 million taxpayers by 2010. No longer a tax on just the wealthy, the AMT now affects middle income families. The AMT brought in $18 billion in tax revenue for the government last year.

With the AMT, more income is taxed, so it consistently produces a higher tax bill. Additionally, just about the only common itemized deductions allowed under the AMT are for mortgage interest and charitable contributions. Income used to pay state and local taxes and allowances for large families are conspicuously absent from the list of deductions used in the AMT to measure how much tax the wealthy can pay. What was defined as wealthy in 1969 when the AMT was first introduced has not been indexed by inflation. Now individuals who earn middle-incomes are categorized as high-income individuals for tax purposes, making AMT a kind of “tax out of time.”

“The New York area in particular is an example of the inequity of the AMT as families who live in counties or cities with a greater cost of living are negatively impacted by the AMT,” David A. Lifson, NYSSCPA President said.

He added that according to the Council for Community and Economic Research formula, in 2006 the national median household income was $48,451. In Manhattan, the median household income was $60,017; however when income was indexed by cost of living, median income in New York plummeted to $28,579. Because the AMT does not allow for deductions that create the higher cost of living like state and local taxes, those individuals who live in a region like New York are negatively affected.

The Simplified, Exact, Transparent (SET) Tax, developed by the NYSSCPA, offers a greatly simplified approach to income tax reform that not only eliminates the AMT and other unnecessary complexity of the current tax system, but it also generates revenue that will make up for the loss of revenue that will occur with the elimination of the AMT. This projected loss of revenue has been a major stumbling block in other efforts to eliminate the AMT.

The SET Tax translates all the provisions of the current Internal Revenue Code into a simple, single formula:

Income – Congressionally defined subtractions (deductions) x rate = Tax

The SET Tax would tax all incomes over a threshold established by political leaders, reduced by government-approved subtractions (such as mortgage interest or childcare), at an economically appropriate and socially acceptable single rate.

“We cannot predict the actual rate, but a 35% rate would keep the existing tax bills for all currently compliant taxpayers. The SET Tax starts with a higher rate and narrows the base transparently through subtractions,” Lifson explained.

This simple calculation gives the majority of Americans the exact tax amount that they owe the government.

Transparent, the SET Tax allows taxpayers to see what taxes they owe, why they owe tax, where their money is going and how deductions directly benefit them.

The current system achieves progressivity through requiring a progressive tax rate, making lawmakers’ position on fiscal policy and tax planning unclear. The SET Tax accomplishes progressivity, by using a single tax rate on all gross income and then allowing straightforward subtractions defined by Congress, such as mortgage interest, state taxes and charitable contributions and a portion of long-term capital gains. Taxpayers will see how their subtractions lower their tax base and what benefits they are receiving from the government (such as a mortgage interest subtraction).

“The SET Tax is a transparent way to see the impact of social and tax policy decisions made by Congress. These decisions are currently often opaquely buried in the tax system,” Lifson said.

In addition, although the current tax system has an 85% compliance rate, a 90% compliance rate could be a by-product of this easier to understand and easier to check SET system. This way the SET Tax would raise significantly more tax revenue and permit Congress to enact lower tax rates to compliant taxpayers, reduce deficits, and increase spending for worthy government programs. The requirement that all individuals (including both non-payers and under- payers) file a tax return, would not increase the number of taxpayers who owe taxes. However, the requirement would create a culture of compliance. This culture would weaken the attraction and viability of the underground economy.

Undressed, the SET Tax is a flat tax because it has one rate, but it’s not the flat tax. Flat tax proponents state that a tax system with a single, lower rate is better. More importantly, the flat tax is often perceived as a way to lower taxes on the wealthy. The SET Tax proposal does not promise or promote redistribution of the tax burden; it only makes it obvious if it happens.

Because our income tax funds government, the SET Tax proposes that any income earner should file a tax return, even if no tax is due. The SET system is simple enough to demand this without placing an undue burden on all American citizens and residents.

With more income disclosed, additional government revenue can fund more social and economic goals.
The SET Tax has been examined by hundreds of CPAs and has been discussed with representatives of the Treasury Department and members of Congress. It is pro-growth, and stimulates the economy by encouraging savings. It is also revenue neutral, distributing the tax burden among various income groups.
For further information on the SET Tax, visit the NYSSCPA website, www.nysscpa.org.

About the NYSSCPA

Representing 29,000 CPAs, the New York State Society of Certified Public Accountants (NYSSCPA) is the oldest state accounting organization in the nation, celebrating its 110th anniversary this year.

Incorporated in 1897, the Society is a not-for-profit organization that seeks to establish and maintain high standards of integrity, honor, and character among certified public accountants. Its members are CPAs working in public practice, industry, government and education in a state that serves as the home of Wall Street and major financial institutions.

The New York State Society of CPAs is located at 3 Park Avenue, New York, NY 10016. To learn more about the Society call 800-633-6320 or visit the Society’s website at www.nysscpa.org.