The AMT

NOT to be confused with ATM, this would actually be considered a “reverse” ATM, LOL. As I read more about the looming “fiscal cliff” we are suddenly hearing so about, now that the elections are over, I read that “provisions that limit the reach of the “AMT” and cut payroll taxes are scheduled to expire at the end of the year.” I have to admit I wasn’t as informed as I should be with the AMT and at first ignored it, passing over it as I'd read recent news articles warning of this eminent year end crises our country faces. But then I did my homework and utilized the wonderful resource we have in Google, and did a quick search.

What I learned about the AMT is it stands for The Alternative Minimum Tax. It seems that back in January of 1969 the Congress was informed of a small elite group of 155 individual taxpayers with incomes exceeding $200,000 ( a LOT back then) who had paid NO income taxes in 1966. Well this caused a political ‘firestorm’ as Congress received more angry letters from constituents about this than they did about the Vietnam War! Acting faster than we could ever imagine Congress today acting, within the year Congress had remedied the situation, enacting a minimum tax to prevent wealthy individuals from taking advantage of tax loopholes to limit their tax liability to the Federal Govt.

Well back then this tax applied to a small number of americans by and large. Today, 40 yrs later, the number affected by this tax has risen to 31 million, as income levels along with inflation have risen. The way the tax works is that those applicable individuals must figure their tax liability twice, one using the regular formulation everyone else uses, and then again, under AMT rules. If liability under the AMT rules is greater they must pay the difference in what is called a surcharge, or the ‘AMT’. Before you think these fortunate top earners are being punished by such measures, consider most retain lawyers, accountants and Brokers who have made an artform out of finding /utilizing loopholes and tax ‘shelters’ to limit the federal tax liability they ‘should’ be paying.

For a clearer, more precise indication of where the burden of taxes falls MOST heavily, you can see by charts put together by independent groups like Citizens for Tax Justice that analyze such things, when you look at total taxes paid (federal, state and local) most Americans are paying between 25 percent and 30 percent of their income (far more than the 13.9 percent Mitt Romney paid in 2011).

However, getting back to the AMT, the Bush tax cuts that immensely benefited mostly the wealthy for so long, are currently scheduled to expire at the end of 2012 (I consider that a good thing) as well as provisions that have cut payroll taxes but more importantly those laws that have, to date, limited the reach of the AMT. In this economy, THIS is what most middle class americans should be thinking about, informing themselves about, as our Govt searches for solutions to fix the looming fiscal cliff crises at the end of the year.

As opined by Dave at DaveManuel.com, “while tax increases and spending cuts would reduce the size of the national deficit, most economists feel as though the sudden changes would plunge the country into another recession, especially given the fact that the country has been so dependent on fiscal stimulus over the past number of years.” This is just one viewpoint, but I like to consider them all. I personally have come to feel tax increases overall are a necessary evil with what we face, spending cuts must be tempered with income, balance must be achieved, and I have no problem paying more, making adjustments in our personal spending as may needs be, just so long as the wealthiest, more fortunate among us, who have utilized the resources we ALL pay for (roads,highways, utilities, etc) to create and grow their incomes, do indeed pay their FAIR share.

Let us hope after the past 4 years of a do-nothing congress, in the aftermath of this election, where “the people” have clearly indicated their preference for which direction to take the country, our Govt can move beyond partisan bickering and stallwarting, and do their job.