Thursday, July 21, 2005

When a Tax Cut can be a Tax Hike

The President's tax advisory panel suggests getting rid of the Alternative Minimum Tax (AMT). But you could wind up paying more taxes as a result.

The AMT was set up to guarantee that everyone paid some taxes -- even if they had a lot of deductions. But as incomes have risen, more Americans may be drawn into the AMT.

So the panel wants to kill it off. At the same time, analysts worry the plan will involve a trade -- to kill off the AMT, you'd have to lose your state and local income tax deductions.

Nothing's free. (Bloomberg)

2 comments:

Michael Meckler said...

Rising incomes alone are not the sole reason for the increasing number of Americans getting caught up into the AMT. The extremely common use of home-equity loans, plus the growing number of Americans who own stocks and bonds, as well as the desire among certain religious and ethnic groups for larger families, all are factors that result in the use of deductions that can trigger the AMT. The solution to eliminating the AMT does not need to be regressive at all. Progressive tax rates can be maintained and even strengthened. Elimination of the AMT has more to do with the AMT's encroachment on the middle class than with the AMT's original purpose to ensure that the wealthy pay some income tax.

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