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Growing AMT on the Horizon?

1 min readBy: Gerald Prante

The alternative minimum 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. (AMT) is back in the news, and politicians are aligning based upon geography rather than party in an effort to protect their constituents from increased tax bills next year. From CBS News:

More than 17 million individuals and families could start the new year facing higher taxes because of a provision unfamiliar to most taxpayers — the alternative minimum tax.

The new year means the expiration of a temporary fix that prevents the alternative minimum tax from hitting millions of people this year on taxes due next April. But if Congress doesn’t act, the additional tax will return for the 2006 tax year.

Originally designed to make sure wealthy individuals paid some tax, the alternative minimum tax reaches further into the middle class every year as inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. pushes more and more people into its grasp. (Full Story)

Here’s a chart of the projected impact of the AMT over the next decade if it’s not reformed (click to enlarge):

One way to avoid this annual wrangling over temporary AMT fixes is to take a serious look at the proposals put forth by the President’s Tax Reform Panel last month. Both of the recommended tax plans would scale back many deductions, credits and exemptions that typically throw taxpayers into the AMT, allowing lawmakers to permanently do away with it.