The not-super rich may get AMT break
Key House tax writers reach consensus on proposal exempting those making under $250K from the wealth tax, and increasing bite on those making $500K-plus, according to leading tax publication.
NEW YORK (CNNMoney.com) -- House Democrats on the tax writing committee may have come to a consensus on how to reform the Alternative Minimum Tax (AMT), according to a report Wednesday in Tax Notes, a trade publication published by Tax Analysts. The proposal would give the biggest tax break to middle- and upper-middle income households.
The AMT is often called the wealth tax because when it was created in 1969, it was intended to ensure the highest income filers paid some income tax. But the regular tax code and the AMT have changed greatly since then and not in tandem. Consequently, tens of millions of taxpayers are at risk of having to pay the AMT, which results in a higher tax bill.
A Democratic member of the House Ways and Means committee told Tax Analysts that the committee's tax writers gave the nod to a proposal from Rep. Richard E. Neal (D-Mass.), according to Tax Notes. Neal chairs the Subcommittee for Select Revenue Measures, and has told Tax Analysts that he hopes to have a bill on the House floor within two months.
Calls to Congressman Neal's office for confirmation were not immediately returned.
Neal's proposal, according to Tax Analysts, would do four things:
In previous analyses of various AMT reform options, the Tax Policy Center estimated that excluding joint filers with incomes under $250,000 would mean a tax cut for 66 percent of taxpayers in the top 10 percent of the income distribution.
For this to work in a revenue-neutral way -- meaning there would be no loss to government coffers because of the change -- the Center also estimated that lawmakers would have to raise the AMT rate to 35 percent from the current 26 percent and 28 percent rates. That would result in an average tax increase of almost 8 percent - or $30,303 - for the top 1 percent of taxpayers.
That also assumes those making between $250,000 and $500,000 would pay some AMT, but on a phased-in basis. That is, your AMT bill would be reduced by a percentage based on the difference between your income and the $250,000 threshold. So if your income is $300,000, or $50,000 above the threshold, you'd calculate your AMT bill and then multiply it by 20 percent to figure out what you owe.
Roughly 15 million households make up the top 10 percent of taxpayers, whose adjusted gross incomes are at least $99,000. Of those, 1.5 million make up the top 1 percent, whose AGIs are at least $328,000.
If lawmakers do nothing about the AMT, it threatens to hit upwards of 30 million taxpayers by 2010. In the past six years lawmakers have issued temporary patches to protect those filers from the tax, but the latest patch expired in 2006.
The AMT now threatens so many people for a few reasons: