The TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation has released a new study that takes aim at the political rhetoric that is taking place on the issue of the Alternative Minimum Tax. Many politicians on Capitol Hill want it both ways. They say the Bush tax cuts primarily benefited the wealthy and did little for the middle class, while they also say that AMT is now a significant burden on the middle class. This Fiscal Fact shows that the additional AMT hit that many taxpayers are scheduled to receive in 2007 (under current law) is miniscule compared to the savings that the same taxpayers have received from the Bush tax cuts.
It is true that the Bush tax cuts have forced many of these taxpayers into AMT, but that’s because the tax cuts have reduced those taxpayers’ ordinary tax liabilities by so much. In fact, the average AMT taxpayer for 2007 saved nearly 3 times as much from the Bush tax cuts than non-AMT taxpayers (in dollar terms), largely because AMT taxpayers have dramatically higher incomes, on average, than non-AMT taxpayers. However, AMT taxpayers actually tend to have lower tax bills on average than those with similar incomes outside of AMT because those that are put in AMT typically have high values on other deductions that are not taken away by AMT.
The table below looks at the universe of AMT taxpayers and shows how much they have saved (even after AMT) from the Bush tax cuts. Specifically, the second column shows the difference in what the average AMT taxpayers in various AGI groups would be paying in 2007 if the Bush tax cuts had not been passed.
|
AGI Group |
Net Tax Savings for 2007 from Tax Cuts |
| All AMT Returns | $2,776 |
| $1 – $50,000 | $742 |
| $50,000 – $74,999 | $931 |
| $75,000 – $99,999 | $1,486 |
| $100,000 – $149,999 | $1,709 |
| $150,000 – $199,999 | $1,804 |
| $200,000 – $499,999 | $3,498 |
| $500,000 – $999,999 | $18,420 |
| $1 million and Over | $127,247 |
Lawmakers need to stop with rhetoric about the “middle class” when it comes to this issue, and instead analyze the issues that put taxpayers into AMT in the first place, and whether or not those provisions (like the state and local tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. ) are sound tax policy. A recent Tax Foundation piece looked at the issue of the AMT in-depth and recommends that fundamental tax reform that broadens the regular income tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. for all taxpayers should be the path to AMT reform, not short-run fixes.
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