Alternative minimum blame
At yesterday's House hearing on the alternative minimum tax, Republicans blamed Bill Clinton for the ever-expanding reach of the AMT. (More on that here.) I suspect they were channeling this Wall Street Journal editorial:
Here's a response to that argument from Wayne State University tax law prof Linda Beale, who blogs at ataxingmatter.blogs.com. (The emphasis is hers.)
The Journal blames Clinton for the AMT because the Clinton administration did the sensible thing--when top rates were raised, the AMT rates were raised as well so that the AMT could continue to function parallel to the regular system the way it was intended to. (Clinton also increased the AMT exemption--permanently, unlike the Bush Congress.) If the Bush administration had applied the same logic that the Clinton administration applied, it would have lowered the AMT rates (and again increased the exemption permanently, because of inflation) when it lowered the regular tax rates, so that the AMT would have continued to function parallel to the regular system in the way it was intended to.Discuss...
Were the orginal designers of the ATM completely incompetent/ignorant or is there something more insidious going on by not indexing the tax to inflation? Is capturing more and more of the middle-class income really the goal?
Don, your point is well-taken. I think the real problem is that noone in power has yet been willing to accept the huge downward revision in projected Federal Revenue that would result from AMT reform. Even just indexing to inflation would greatly affect that number, which would turn us as a nation from a Social Security crisis into a full-blown meltdown. AMT will have to be reformed as part of a comprehensive plan that addresses SS and Medicare, or no one in Congress will have the guts to endorse a bill that touches it.
Of course that would require Congress to finally confront the single largest problem with our nation's long-term fiscal health. That's like asking a long-term addict to stop smoking...
the fact that no inflation indexer was included in the original legislation and has never been included since is an indication of the prevailing level of economic understanding in both the government and the voting public. this is the same faith in the magic touch of government that has led to the social security and medicare/medicaid disasters. if we must have such coerced benefits, design them to be as slim and efficient as possible.
'Clinton also increased the AMT exemption--permanently, unlike the Bush Congress?'
And this guy is a professor? Man I knew the education system was in trouble, but yikes a professor who can't distinguish between the executive and legislative bodies, that's a new low.
If anyone with income of over $175,000 is so irresponsible that they resent giving back a mere 28% of their income to enable the country that made them so well off stay strong, they should revoke their citizenship and move someplace else. It takes more than brains and luck to make $175,000. A great justice system; a great educational system; a healthy, well-educated work force; a safe environment; and a strong military are all important foundational elements of every successful person's prosperity. It costs tax dollars to pay for the kind of environment that fosters economic success, and the properous should certainly be required to chip in at least a minimalist 28% of their more than adequate income to ensure that they contribute their fair share of the cost of running this great country.
It is obvious that John whose last comment is that the "prosperous should certainly be required to chip in at least a minimalist 28% of their more than adequate income" to taxes is ridiculous. This shows someone's true socialist colors. 1)**The AMT does not just apply to people who make $175,000.
The system is not indexed to inflation and that means a working family with income of even $100,000 could become susceptible to this tax. In some areas $100,000 may seem like a lot but if you have 2 kids, a mortgage payment, health care costs and live in an urban area where even a 2 bedroom condo costs in excess of $500,000,-the $100,000 is certainly middle class and not wealthy by any means.
2) Earning a sizeable income does not indicate that you should be obligated to pay the government any more in taxes. If you make that much it is because you are financially savvy and blessed with the skills to command that income. It does not give the U.S. government the right to take more of their money simply because they are wealthy. The problem is not that the rich need to be taxed more than everyone else and forced to pay what John's "guilt tax" for being so lucky, the problem is the government needs to stop wasting so much of our money on socialist programs and pork packed bills calling for bridges to no where. The government gets to do the one thing that I wish I could do. When they spend all of their paycheck (taxes), they just go to their bosses (the American public) and ask for more and they don't even have to ask for it because the can just take it if it isn't given to them by raising taxes. So John the problem isn't that the wealthy should feel guilty for making so much and should humbly hand over the hard earned dollars to the spoiled child that spent all his ice cream money and now wants more. The problem is the government needs to be held accountable for their outrageous spending because based on your logic there is no reason for anyone to strive to be successful or wealthy if they are expected to pay a guilt tax for it. However, the AMT is not a guilt tax for the wealthy but an ill advised short term tax fix passed by ignorant politicians, that much like our politicians today, were too concerned with their present condition to worry about how those in the future would suffer for their nearsightedness.
175,000 in san francisco ain't the same as 175,000 in kent ohio. Which is another problem with the tax system...
John...you don't get it. Your comment is even more irresponsible. That's like saying that everyone should pay the same tax rate regardless of income. Why should the people who work their tails off have to pay a higher rate while the people who don't work as hard and earns a lot less pay a lower rate? The AMT is penalizing the middle class. And it's actually hurting people who are getting married with dual earners and kids. This needs to be addressed pronto.
I don't think you understand AMT and the income or actual income a person receives. If your income is over $175,000 and let's say your a sole proprietor who has expenses, your in a bad spot.
Your gross income may place you in the AMT tax rate, but your real income after all expenses may be $30,000 and that's what left to pay your taxes, living expenses, etc. The net result is far different than just assuming someone earned $175,000 and that all went into their bank account. The middle class is getting squeezed into the AMT tax rate. The tax should be indexed for inflation. This is simply logical. Social Security and Medicare should be handled on their own without regard to AMT tax.
"If anyone with income of over $175,000 is so irresponsible that they resent giving back a mere 28% of their income to enable the country that made them so well off stay strong, they should revoke their citizenship and move someplace else."
If you live in California $175k gross income hardly pays the bills when the average mortage+property tax is around $4000/month. what AMT does is to prohibit people from even deducting the property tax and state income tax thus double taxing.
What do you suppose is so insidious about a flat tax rate of 10%? Surely it is as easy for the poor to pay 10% of little as it is for the rich to pay 10% of a lot. Should you get a tax break because you are blind in one eye? In two? Because you are a widower? Again, 10% of what you earned seems like fair treatment to everyone involved.
What kind of review process do you have that let's someone comment with complete ignorance? The article clearly stated the professor was a woman, and the commentator calls her a man and suggests he is an idiot for not knowing the difference between the legislative and executive bodies. Clearly this post has no intelligence whatsoever (since the poster forgot that bills are signed into law and thus all parties must share the blame). I think I shall not return to your blog.
To the person that believes that someone making over $175k should be taxed more to benefit everyone else is... We are talking about the AMT group, not the rich. Whether they are irresponsible is irrelevant. And fair share, boy, you should really look at all the loop holes in the tax codes for the rich in this country before you make that statement.
Now, consider this, majority of the people who are affected by the AMT are more likely to be the ones who continues to keep themselves updated in the market place and striving for new skills that will give them an edge. And less likely to become couch potatos! It's a shame that all the investments (opportunity cost) that they have made is to take on a bigger burden of taxes so that the less willing can enjoy their TV time or say to themselves that the government will somehow create more programs or tax codes to take care of the ones who lack desire to strive for the American dream.
Well, let's not tax the ones who are considered rich so they can continue to see their fortunes' multiplies. And let's not tax the poor, because their taxes won't make a dent in our federal budget. Let's tax the AMT group, because they are too busy to do anything else other than finding that edge.
I am one of those affected by AMT. And I strive for the American dream. Now, you tell me what is a fair share for my opportunity cost?
The AMT goes back to Tip O'Neal as his way of offsetting the Reagan tax cuts. Subsequent complaints do not take the issue back to its route cause.
I don't agree with every point of John's post, but he does make a very valid point about the infrastructure that gave the wealthy the opportunity to become wealthy. If the wealthy got that way just by "working harder" or being "financially savvy" then let's strip them of their money and send them to Iraq and see how wealthy they can become. The answer is: not at all. We all enjoy the infrastructure that allows people to become wealthy, and when you are truly successful at leveraging that infrastructure it is fair that you should do more to support it. Warren Buffett himself has made comments to this effect; this isn't coming from socialists.
I'd also like to address the idea that the wealthy "work harder". Most of the poor and middle class work harder than any of the wealthy. The difference? The wealthy have realized how to be capitalists in a Free-Market(tm) Capitalist economy. The poor and middle-class have not; they are merely the capitalists laborers. It helps a lot to know the real rules and how the game is really played.
I'm shocked that no one has mentioned this: the 106th Congress passed a bill that would repeal the AMT, and Clinton vetoed it. See: http://www.house.gov/jec/tax/amt.htm
Given that, it's tough to argue that Clinton doesn't deserve blame. Of course, others do too.
If politicians and economists would stop playing the blame game and work on the problem, we'd all be better off.
The bottom line is that we are where we are. Any relief in the AMT through higher deductions, more deductions or lower tax rates is tax relief. I'm not saying that it's not needed, but call it what it is.
I've heard so much more talking about who's affected and the history of the AMT than what can be done about it. It's very tiring. Same thing with the estate/death tax. So for all those people who have posted, let's hear what you have to say.
I'd say let's adjust the execmption up one time and index it to inflation from this point on. Call it tax relief, so with paygo (not that I believe Congress will adhere to it, but it's a nice theory), you have to cut spending somewhere to match it.
How much is enough? Here is how it goes:
Earn $175K and get taxed at 28% and 8% for state & Local (toal %36%)
Buy a house and get stuck w/ property tax.
Hold on to the house for enough time and eventually retire and sell the house. pay tax on the gain (unless i roll it into another house or take the 1 time exemption of %250K)
The govt is too big, and spending too much $$ on things the founders never intened govt to do.
Just my opinion.
What I do know is that under the tax rules that Bill Clinton and the Democratic Congress put into place, I NEVER had to pay AMT. The amount that was withheld from my paycheck plus some extra for the marriage penalty, was sufficient for my federal tax bill. I retained by deduction for state taxes and the personal decutions for my children.
The first year of the Bush "tax Cuts" all of a sudden, I lose both of my personal deductions for my children and my deductions for my state taxes, and I owe thousands of dollars in federal taxes. The estimated taxes that I sent in for my capital gains (figured at 15%) were not sufficient anymore because of the further loss in AMT exemption.
I'm sorry if the Republicans want to blame the AMT problem on the last Democratic admistration, but myself and other professional couples that I know did not have to pay any AMT until the Bush tax cuts. It was the differential that the "tax Cuts" created that threw people into the AMT. By structuring the tax cuts the way that they did, the Republicans backfilled the loss in revenue from the "tax cuts" with AMT revenue. AMT became a stealth tax, propping up the appearance of the "tax cuts" not contributing to the deficit as much as they would if the AMT werern't serving the backfill.
Bush just wants to preserve his outrward "legacy" of his "tax cuts" for the history books and blame the AMT "problem" that he himself created on someone else.
Fair? We will only see a fair tax system when Congress implement flat tax across the board. You make so much, your taxed so much. Take out all the loop holes available to certain groups of people. I just did my taxes and the amount of work I had to do to figure out AMT is ridiculous (and I've been an AMT victim for years now). I would like to see 1 senator or congressman figure his/her own taxes under AMT. Or maybe they have a loop hole on that...
If 10% is good enough for Jesus, then it ought to be good enough for Uncle Sam !
Btw, what did our government fixed lately? social security? medicare/medicaid? fair tax? dependence on fossil fuel? Oh right, none of the above.
Everyone should make the same amount of money (and pay the same amount of taxes) no matter what they do. If we all live identical lives, there would be less violence and theft.
It's time for people to get real. The AMT was established because there were people earning a lot of money and paying no taxes. Without the AMT, the same situation would exist.
The rich get every bit as much return for their taxes as the poor.
Every year congress takes up the AMT and adjusts it for that year. The exempt amount is substantially greater than the mean income.
I'm amazed by all of the people who believe the rich earn a lot because of their hard work and the poor are all lazy.
These are the same people who get all bent out of shape whenever a minimum wage increase is mentioned.
As the rich continue to get richer and the difference between the haves and have-nots increases, I'm still waiting for Reagan's trickle-down economics to actually reach the poor. It's been more than 25 years and still the rich complain about the small amount they have to pay when compared to the large amount they get to keep.
Forget the percentages. Take a look and what you have, give thanks, and quit complaining.
I 've paid the AMT for the last 3 years and honestly it is not that big of an imposition and I am not rich. The crux of the matter is that government needs to raise a certain amount of revenue to pay for its spending needs (defense, police, roads, social security etc.) Despite our gripes about government inefficiency we have not managed in our long history to vote in a more efficient government (don't blame the politicians, it's us the voters who choose them) so it's fair to say that somehow the revenue needs to be raised. Most Americans also tend to believe that since we all need to eat and stay somewhere poor Americans spend more of their income on those basic necessities and therefore that leaves them with little leftover money to pay for taxes. Therefore the richer with more leftover money have to pay more to cover the government expenses. Given these assumption the AMT looks like a decent approach to ensure that the rich do their duty towards the country. You might want to tinker with the details so it does not catch as many middle class people but in the end the money has to be raised. An easy way would be to realize that Bush's taxcuts were unaffordable for the country and roll them back. If a Republican president and Republican congress failed to cut the budget to compensate for the lower revenue it probably means it's very hard to do and unlikely to get done. So stop complaining and pay up like I do.
John in Kent is closer to being right than most of you objecting to him. This crying about gov't waste is really a red herring. The truth is that most of our taxes are used with reasonable effectiveness. Waste is a human failing. Fortune 500 companies, Gov't, small businesses, you and I all waste a reasonable percentage of our resources, and the difference is smaller than most folks would care to acknowledge. Cappucino anyone? Or maybe it's that Harley in your driveway. In any case, I hate the bridge to no-where Alaska as much as Derek, and I don't always like the way my tax dollars are spent, but the rhetoric about all gov't spending = waste is not very accurate. Also, poor people are not all lazy, and rich people are not all virtuous go-getters. A lot of hardworking people are poor, a lot of rich people just got lucky. There's a kind of holier than thou thing common to the middle class that we got where we are because we worked hard, implying all the poor people were lazy. In some cases they are, but in some cases they aren't, I don't think it's fair to imply that they all are. I've worked hard (I think 100+ hour weeks qualify)and gotten a little lucky, and I think I should pay more than someone who has fewer advantages, and benefitted less from our system of economics and gov't. At the very least, I should pay at the same RATE or slightly more per dollar. Where I disagree with John, and the only place I agree with Derek, is that the AMT is biting the wrong people... it's starting to hit the middle class, and damaging the incentives built into our tax system to build and support the middle class, such as the mortgage deduction, by dis-allowing them. The AMT needs to be structured to hit the folks making $200K to roughly $600K, to correct the fact that they pay a lower rate of taxes per dollar earned than anybody except the under $25K crowd (see David Cay Johnston, you can look it up), and the $600K and up crowd who often find tax advantages you and I can't get to take their taxes to ridiculously low rates.
Why not repeal the AMT and backfill the lost revenue with a tax on the biggest corperation/Political Action Commitee of them all?
Namely, organized religion.
It's time for people to get real. The AMT was established because there were people earning a lot of money and paying no taxes. Without the AMT, the same situation would exist.
The really rich people (ie the top 1-2% of earners) are not impacted by the AMT. Once your family makes about $500,000 per year, your regular tax liability is great enough so that the AMT does not apply. There was an article in Fortune I think in the last 6 months that detailed this, and that article suggested the best thing to do to avoid AMT was to make more that $500,000 (not a possiblity in my case). So if the people who don't have to work for a living are not currently impacted by the AMT, why should people making less have to pay it? Why should you lose your deduction for your children, but keep the deduction for the interest on whatever Mansion you might live in? Why should you be penalized for marrying a person with a real job who might be able to support your children if something happened to yourself?
Most of the loopholes that people were using in 1969 to avoid paying ttaxes don't exist anymore. Why should the AMT still exist to tax people who still have to work to maintain themselves instead of idle billionaires? if you can explain to me how as a working professional I can hide my income legally and pay no taxes nowadays, I would be willing to listen.
John, you definitely don't get it. $175,000 may seem like a lot to a person in Kent, Ohio, but in New York and California it does not go too far. I understand this is very difficult for people from other parts of the country to grasp, but it's a reality and it's precisely what's is wrong with the AMT. The AMT makes sense in places like Kent, Ohio -- just not in places where the cost of living is eminently higher.
Why should there be an ATM? Since when does it say that the successful should be willing to give more to the tax man? The only people that benefit from this hidden tax are the money grubbers that sit on capitol hill and think they know better about spending the hard earned money of others. (This is the start of Socialism) All they do is waste the funds they do receive by funding useless projects like long term unemployment, welfare payments and the like! Whatever happened to the American ethic of work hard, save money, don't live outside your means and not be a drain on society? Too many have their hand out and Washington is more that willing to be "Robin Hood"! I say do away with this stupid tax and lets get to a "Real" Tax simplification that fits the bill and doesn't strain the regular families that are not blessed with outrageous incomes. Everybody wants to pile on whats left of the "Middle Class". If you don't think this nation is in trouble, there is a big surprise coming for you!
Eliminate ALL income taxes and go to a national sales tax and a consumption tax. - The more you make, the more you spend, hence the more taxes you pay, then everyone pays the same percentage of tax no matter how much they make.
Bob, you're also missing the point. The AMT doesn't affect only "the rich," but the hard-working middle class as well. If you had done some background reading on the subject, you would know that every year the AMT hits more and more middle class Americans. The annual adjustments you refer to have been ineffective.
Easy solution to it all: implement the Fair Tax (www.fairtax.org). This incredibly well-studied system of taxation would eliminate the AMT, eliminate the IRS and all the costs associated with tax collection, and implement a consumption tax instead of an income tax, so each individual can control his taxation amount by controlling how much he spends. This way people would no longer get punished by excessive taxation for providing value to society.
I said the AMT came into being because there were "people earning a lot of money and paying no taxes." By the way, the wealthy who pay more via the regular tax system are already paying more, which means that those who have to use the AMT are paying a lower percentage than the very rich.
My wife and I earn about $45,000 (gross) a year, own our home free and clear, have no debt, save more than $1,000 per month, fund our IRAs, and contribute nearly $400 a month to my mother-in-law's upkeep. We live in a community where the median home price is nearly $400,000 and regular gasoline goes for more than $2.65 a gallon. It never got lower than $2.41 in recent months.
It isn't as expensive as some place, more expensive than others. More important is that it's possible to make it.
First, you don't have to have the most expensive home. Our free and clear home is 1,008 square feet. We're both in our early 50s and we've owned a total of six cars in our life (we still have three of them). We've never owned a new car, and in fact the newest was seven years old when we purchased it.
We've never inherited money, never earned more than $65,000 (combined),and our net worth is more than $750,000.
my husband and i built and renovated our home and turned it into a business to secure our future. we also supported my destitute mother. 8 years later my husband had a series of 3 heart attacks and needed to quit his business. after 17 years we sold to get out from under mounting fixed expenses.
we paid off our mortgage and bills, moved, and then the AMT took everything we had worked for for 20 years. the AMT took what we had worked for for 20 years. what do we do now? My husband is sick and we have a 13 year old, and a mother that depend on us. we are our of our rental end of july with no place to go
To the people who are complaining that $175k doesn't go as far in NY or CA as in OH:
Why do you think the people in OH should subsidize your federal tax obligations so that you can live in a place with high taxes and an expensive cost of living?
It is YOUR choice to live there, after all. $175k is $175k, it's up to you where you live and how you spend it.
AMT, Soc. Sec., Iraq, etc., etc. The American people only have themselves to blame. We keep electing the same crooks and liers to represent us in our local, state, and national elections. When we wake up and elect someone who realizes its a priveledge and honor to serve and not a way to get rich and screw the electorates, only then will we begin to turn this country around. The American people, Republican & Democrat do not know half of what goes on in Washington and no one could ever hope to get a clear picture from the media. Cut their salaries, take away their their entitlements, limit their terms, and hold them accountable only then can we hope for some sense from what we wee today.
Everyone pays the AMT and everyone pays the regular tax. If your regular tax is $18,000 and your AMT is $20,000, you pay $20,000. If the two taxes are reversed, you still pay $20,000. One reason more people are paying the AMT is because tax cuts lowered their regular tax. This could be fixed by raising the regular tax. Is that really what you want?
I would rather see the regular tax eliminated and stick with the AMT than the other way around.
Me on the Fairtax:
Mike in Irvine writes:
"What kind of review process do you have that let's someone comment with complete ignorance? The article clearly stated the professor was a woman, and the commentator calls her a man and suggests he is an idiot for not knowing the difference between the legislative and executive bodies..."
The answer is that I'm pretty permissive. Misreading and misspelling is forgiven. Spam messages, wildly off-topic messages, and truly abusive posts are not.
Re: Wealthy getting wealthy because of the infrastructure in place..
What about the people who get wealthy who come from areas without a formidable infrastructure in place, e.g. failing schools, limited access, horrible teachers, etc.? Should they pay for an infrastructure that they succeeded in spite of, as opposed to as a result of?
To Pete from Detroit,
No one is advocating that those who live in places where the cost of living is higher subsidize those who live in areas that are less expensive. The point is that someone making $175,000 in the more expensive areas, like NY, aren�t �rich� like they would be in Ohio. And, sorry, your view that �$175k is $175k� is flat out wrong. If you disagree with me, come to Manhattan and how far your Detroit salary gets you. Seriously. You have to realize that a $175,000 salary in NY probably equals about half that in places like Ohio -- but the person in Ohio who makes that that salary gets taxed at a much lower tax rate. That�s what�s unfair about our tax code and, in particular, the AMT. And there isn�t always a �choice� for professionals to make about where they live and work. I work in finance and my job only exists in New York, so moving to Ohio isn�t an option -- unfortunately. Believe me, if New Yorkers could take their salaries and move to some rural community where they could afford to buy a simple house and make the same salary, they would do it in a heartbeat.
To correct a point made by John in Denver...
Mortgage Interest is still deductible for AMT purposes. As are 2nd mortgages and HELOC provided they were used for home improvement or purchase.
If they succeeded, they succeeded because of political stability, highway systems that transport goods, an Internet (communications infrastructure) that was developed by the U.S. government, a stable economy that is found no where else on the planet, etc. Even if they had lousy schools they had streets, public sewers and water systems, electricity, and other infrastructure unavailable in much of the world. If they succeeded despite some educational (or other) difficulties, that's fantastic. But they also succeeded because of an infrastructure unavailable in most of the world. They may be a "disadvantaged American", but that's still a very privileged person by world standards.
To Billy in NYC:
Half of $175,000 is still nearly $90,000 and $45,000 is half of that. People who can't make it work with $175,000 anywhere in America need to learn that it isn't how much you earn, but how much you spend.
Simple principal: Spend a little less than your earn, save and invest the difference, and in the long run you'll be well of.
By the way: If you're earning $175,000 a year, how much money are you saving by not having to pay Social Security taxes on the extra you earn?
Oh, the plight of the middle class... If it wasn't for our SUV's and plasma tv's, I don't think we would make it!
Do any of you actually pay the AMT?
The problem lies with Congress, either Republican or Democratic controlled. They constantly refuse to address any major issue (Health care, SS, tax reform, etc.).
EGTRRA and the 2003 act significantly nominally lowered the marginal tax rates for nearly all US taxpayers. However by doing this it brought to prominence a previously lesser known provision of the US Internal Revenue Code, the Alternative Minimum Tax (AMT). The AMT was originally designed as a way of making sure that wealthy taxpayers could not take advantage of "too many" tax incentives and reduce their tax obligation by too much. It is an alternate system of calculating a taxpayer's tax liability that removes many so called "tax preference items". However the applicable AMT rates were not adjusted in step with the lowered rates of EGTRRA and the 2003 act, causing many more people to face higher taxes because of the AMT than had originally been planned. This reduced some of the benefit of EGTRRA and the 2003 act for many middle income earners, particularly those with large deductions for state and local income taxes, dependents, and property taxes. Yes, he cut the taxes on dividends and capital gains to 15%, but failed to talk about the fact that if you are caught in the AMT, the tax is now calculated at 28%.
Since congress is so busy, why do they pass laws that will expire! One of the most notable characteristics of EGTRRA is that its provisions are designed to sunset or revert to the provisions that were in effect before it was passed. EGTRRA will sunset on January 1, 2011 unless further legislation is enacted to make its changes permanent. Why don�t they do their job! Pass a law, if it doesn�t work repeal it! But do not pass a law so that it expires within a decade so they can re-address the issue again. I pay way too much in taxes to a legislative body that is afraid to make a decision!
The government needs money to run, whether it comes via regular income tax or the AMT. But why does it need to be so darn complicated? My complaint is that taxes are so darn complicated that I can no longer do it myself and have to pay hundreds of dollars for a tax man.
Every time our government make things more complicated, it is another anchor dragging on our economy.
John, try to moving to the Northern VA suburbs of DC, where your mortgage/principle and taxes can run over $4k a month! Then tell me that $175k a year is SOOO much money! And by the way, we don't pay JUST federal taxes - we pay, state, maybe local, sales, personal property, real estate, and whole host of other taxes...wisen up, buddy! My husband and I made about $190k last year, and after paying our mortgage and other living costs, and then taxes, ended up with very little to show for it!
What the AMT does, in my opinion, is erodes the "equality" of common folks in this country. You can have a DINK (dual-income, no kids) couple that made $190k and have them not qualify for the AMT, but throw a couple kids into the mix, and they're screwed! BAM! They have to pay the AMT! Why should they have to pay higher taxes? because they make more? Because they have kids and a mortgage? What kind of equality is that??
My husband and I are in our mid/late 40s and ive in New Jersey. Combined, we make right around $200,000 per year, and pay the highest property tax rate in the nation -- we pay almost $18,000 annually, whereas for a comparably sized home with more land in our previous, much less expensive state, we paid $2,600. We've been hit with the AMT each year that we've lived in New Jersey, and never paid it in our previous state. Though we have diligently tried to adjust our withholding accordingly, we pay penalties each year in addition to the AMT. We have no debt other than our mortgage and our net worth excluding home equity is about $1.7 million. It seems as though the AMT targets people who live in high property tax states and earn in the low-ish six figures. Though we have a high net worth, I can tell you that living in the metro NYC area, we certainly don't feel at all "rich." More often than not, when tax time rolls around, we find ourselves feeling punished for being successful.
"Do any of you actually pay the AMT?"
if you had read the previous posts, you would know that many of us posting DO pay AMT. I have been paying AMT every year since the buch "tax cuts" became effective.
What this whole discussion confirms is America is a nation of whiners!
You don't feel rich! With your $1.7M in net worth, you both could quit your jobs and live off interest income for the rest of your life in most areas of the country. I think most people call that rich.
To Bob from Bend, Oregon,
Even the most frugile person making $175,000 in New York City would find it difficult to get ahead. Keep in mind that, in addition to having to pay $3,000 in montly rent for your average one bedroom apartment, most of the professionals in New York have student loans that dwarf the size of the average American's Mortgage. So simply "spending a little less" of your salary isn't gettig you a modest piece of real estate over here. You cannot have any appreciation for how expensive it is to live here unless you live here. $175,000 will always seems like a lot more money to those who don't make it and don't live in NYC. It's a nice salary and I'm grateful, but having to pay back 40% of it to the government is ridiculous for someone who has zero networth, $100,000 + in student loans, and can only afford to rent a one bedroom apartment.
As for the money we're apparently saving by not paying a social security tax, you fail to consider that we won't be getting any greater retirement benefits than those who make $90,000 a year.
I live in NYC. Two teachers married to one another earn more than $175,000 per year. Homes cost more than $500,000 -- and that's a cheap home. We pay federal, state and local taxes. We pay higher insurance premiums -- health, liability, car, etc. We pay upwards of $200 per month -- each-- to commute. $175,000 per year may be alot of money if you live in Podunk, but it's a middle-class income here.
The AMT affects people earning between $100,000 and $500,000 per year -- that's total family income, not individual income. As such, it affects the professional middle-class (teachers, accountants, lawyers, doctors, I.T. people, skilled construction workers such as electricians & plumbers) in LA, NYC, D.C. and other high-tax, high inflation areas. It phases out at very high incomes, meaning that it does exactly the opposite of what it was intended to do, which was to tax the rich who were not paying their fair share of income taxes. Not surprisingly, high tax, high inflation cities are -- Democratic. Not for nothing will Bush and his Republican buddies take my family's income while letting their corporate stock option buddies off the hook.
I want also to tell the person who claimed that earning $175,000 a year meant that you were "rich" that, between federal, state and local taxes, plus the property taxes that we can't deduct because we are in the AMT, my family pays FIFTY PERCENT of our income in taxes. That's before utilities ($700 per month to heat a 2,750 sq. ft. house), health insurance ($11,000 per year), college tuition (don't ask), etc. We are not rich. We are subsidizing the person who wrote that comment. I'm totally fed up with this situtation and have suggested to my husband that we sell our home, move to a lower-tax, lower inflation area, lower cost area and let the poor idiots like us, who are trying to survive in a metropolitan area while paying the AMT, support us for a change. I'd like the person who wrote that comment to pay my bills for a month and then tell me how rich I am.
Chris from Tampa should go to the the CNN cost-of-living calculater and see how much little he'd have to earn in Tampa to approximate the $200,000 per year earned by the couple in New Jersey. And that woman should liquidate her $1.7M and move someplace else? Leave her home, family and job to migrate to a low-cost area? My husband and I could liquidate, too, at age 57 and 56, respectively, and have, not as much in assets as the NJ couple, but apparently more than enough to impress Chris in Tampa. Wouldn't it be nice, however, if instead of requiring me to turn into a migrant worker in my middle-age, the government instead recognized that expenses are higher in my hometown thanin Tampa and, instead of giving me the choice between bleeding to death and leaving the only home I've ever known to move to one of Chris' low cost paradises, allowed me to pay taxes proportionate to those paid by Chris and his buddies in Florida. I'm subsidizing you, Chris, and so is that family in New Jersey. It's you who are the freeloader.
$175,000 a year just isn't that much money these days... that's just reality.
I can understand if someone lives in an area where the cost of living is much lower, and they look at this post and think "what are these people complaining about- they're rich!"
My wife and I have a modest 1500 sq. foot house (built in 1957) in a so-so neighborhood. It cost us $340,000. We live a pretty conservative life and spend responsibly (we couldn't care less what the Jones' are doing, and have no credit-card debt). Even with that being the case, it costs us about $6500 a month just to live a fairly low-key lifestyle. This is just reality. I suppose we could move to Montana... but are you going to leave your friends, family, and career behind to go live in the middle of nowhere?
And by the way, if we all did decide to move to Ohio to save money, all it would do is drive up the cost of living in Ohio (our presence would create supply scarcity).
We are very close to having to pay the AMT. We are not rich. True, instead of living paycheck-to-paycheck, we may be living every other paycheck-to-paycheck, but the Rockefellers we ain't!
Congress and the President knew exactly what they were doing. Attributing to them a lack of economics understanding is incorrect. They understood the consequences then and now. The AMT is doing exactly what it was designed to do.
Isn't it true that the states on the coasts are taxed to subsidize the farm states? We send a lot of our federal taxes to the center of the country in the form of agribusiness farm subsidies and corporate welfare. Cut those, and we'd be a bit closer to a balanced budget. We cannot because those low population "independent" states have disproportionate clout in the Senate.
To Pete - The idea that those of us in New York and other places hit hardest by the AMT are asking you in Kent, Ohio to subsidize us is completely missing the point - in fact, because more of us get hit here with the AMT, we are in effect subsidizing the rest of the country. That's what this whole thing is about. And I frankly don't think that's fair. I already pay extra for the fact that I live in an urban center - with high city and state taxes. Oh, and yes, I have to pay the AMT - and no, I am absolutely not wealthy. In fact, my husband and I are likely going to have to move somewhere else because we can't possibly afford to buy a home here.
The unfortunate reality is that the great mass of Americana does not have a clue what competent fiscal and tax policy should look like, and elect politicians who are just as clueless or owned by PACs. Until the day that the social security system is privatized and people can opt out of the public system, and a responsible flat tax system is implemented the nonsense will continue and the populace will suffer
Move to northeast Ohio...somewhere like Kent...where the living is easy, most school systems are terrific, the commute is short, home prices are inexpensive, and the salaries are pretty good! I liked living and working in New York City, but this is a better place to build wealth and spend time with family, whether you pay the AMT or not.
I remember sitting at the dinner table listening to my father chortle when the Kennedys and their allies in Congress lowered the top income tax rate from 90% to 70% in the early 60s. "They've tripled their net family income," he exclaimed. Then the top rate went down to 50% and kept going lower. Given the history of income tax rates from the 40s until now, 28% doesn't seem at all oppressive, even after removing many of the deductions. It's the Forbes flat tax!
I did live and work in New York City. If you are struggling at $175K, I don't think changing the tax system would help your situation. I say that because so many New Yorkers make much less and have fulfilling, joyous lives.
why not lower overall taxes
then issue bonds for whatever(iraq war,illegal immigrant healthcare,public schools,etc)
so that supporters of that activity can pay for it
you like the war you pay for it
you want to take care of the poor and sick you pay
better schools you pay
then no one pays for stuff that they dont want to
(like school vouchers or faith based charities)
a budget decided by revenue , not by assumptions will be true democracy because programs will only survive with real financial support,not political pressure
This is not my idea of AMT reform.
First of all because of the loss of the AMT exemption many people like myself are already paying 22% effective tax on capital gains.
These proposals preserve the appearance of the Bush tax cuts while making the AMT even more complicated to figure. If you owe AMT you ought at least not to have to pay a penalty for underpaid taxes because it is very hard to figure out how much you have to pay with all these complicated rules and it looks like if Congress passes one of these proposals, it is going to get worst.
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