In the aftermath of the $700 billion bailout, many Americans are wondering how this exercise in government spending will affect their pocketbooks. No place is this of greater concern than in the state of New Jersey, a state afflicted with unusually high taxes. Among these taxes is the Alternative Minimum Tax (AMT), which is claiming greater numbers of victims among middle class families.
The AMT was created by the Democrat-led Congress in 1969 as a parallel tax universe to ensure that “wealthy” Americans paid income taxes even if they had no income tax liability under the regular income tax system. Taxpayers have to calculate their taxes under the regular tax system, calculate them again under the AMT system, and then pay the higher tax liability. Essentially, the AMT was a net to catch high-income tax avoiders. But, Congress failed to look to the future when it wrote the AMT into law, and today it captures many families firmly in the middle class. Primarily, this is because the AMT is not indexed to inflation, so the income threshold set in 1969 for the very wealthy remains the income threshold for paying the AMT penalty today. To make matters worse, especially for those of us here in New Jersey with a very high state and local tax burden, the AMT fails to allow for commonplace deductions and tax credits, including the deduction for state and local taxes and the home mortgage interest tax credit. About 4 million taxpayers each year are deprived of the various deductions and credits that often save middle class families from stiff tax liability.
Last year, 3.5 million taxpayers were subject to the outdated and burdensome AMT. This year, the AMT will affect a whopping 23 million taxpayers. And, according to the Urban Institute/Brookings Institution Tax Policy Center, if Congress continues to neglect this growing problem, in 2010, the AMT is projected to ensnare 32.4 million taxpayers – 34 percent of them are individual filers. That same analysis shows that 89 percent of married families with two or more children and incomes between $75,000 and $100,000 will be penalized under the AMT. By 2017, these numbers become still more dire: 53 million taxpayers – almost half – will be hit by this tax penalty.
There is no question that this outdated tax must be repealed or at the very least reformed. Up to now, Congress has put in place a series of one year patches to ensure that middle class Americans wouldn’t be enveloped by the AMT.
I’ve introduced the AMT Middle Class Fairness Act which would index the AMT to inflation and allow a state and local tax deduction against the AMT. This is a commonsense approach to the underlying problems of the AMT, and it would go a long way to helping New Jersey families who will be sideswiped by this stealth tax. The real answer, however, is to repeal the AMT. Last year, I joined several of my colleagues to introduce a new approach that would actually eliminate the AMT and restore fairness to the system for middle class America. The Taxpayers Choice Act would make the tax system transparent, simple and efficient.
Congress must make fixing the AMT a priority before it destroys the American middle class. It’s time for Washington starts looking out for taxpayers and their pocketbooks. It’s time for Washington to turn its focus on protecting the family budget, not growing the federal budget.
Member of Congress
BIG TAX INCREASES ON THE WAY