We get HAMMERED by the government when we do something late regarding our taxes. What’s going to happen when the government is late? Nothing. Why is this happening? Because the IRS failed to get off their ass and pass the 2007 AMT patch. What does this AMT patch do for me? The AMT is an Alternative Minimum Tax and was created in 1969 to prevent ultra-rich families from sheltering most of their income from the Internal Revenue Service. Because lawmakers did not link the eligibility levels to inflation, over the years, larger numbers of taxpayers have become subject to the tax.
In recent years, lawmakers have temporarily exempted middle-income taxpayers from this AMT Tax. If another exemption is not enacted by December 31st, millions of taxpayers, some with incomes as low as $75,000 a year, could be taxed at a higher rate.
Republics, democrats, senate, etc., is at least on the same page that the AMT should be eliminated all together, but nobody has come up with a solution on how to make up for that lost money. The Tax Policy Center has proposed a revenue-neutral, highly progressive replacement for the AMT. They suggest an “option that would repeal the AMT and replace it with an add-on tax of four percent of adjusted gross income above $100,000 for singles and $200,000 for couples. The thresholds would be indexed for inflation after 2007.”
Others say that rather than reform the AMT, let’s repeal it. The argument is that “many tax loopholes the AMT was designed to address have since been closed; the AMT is needlessly complex and burdensome to taxpayers; and a full repeal would leave federal revenues at 18% of GDP, which has been about average in recent decades.”
So with this delay brings the VERY REAL possibility that many Americans will: 1) pay more and 2) have their refund delayed by several weeks. Indeed, the delay will only affect the early filers that file prior to February 1st, but the tax increase will be felt the entire season.
THANKFULLY, the senate finally approved a plan to prevent the spread of the alternative minimum tax this year, but only after dropping the tax increases the House had passed to pay for the change. This temporary one year fix will give millions of Americans billions in tax relief from the AMT. It will have to be revisited before the 2009 tax season, but maybe by next year, somebody can actually follow through with a good idea and get rid of this never ending deja vous tax nightmare.
The Finance Pig, LLC 