NCPA - National Center for Policy Analysis

THE STEALTH TAX

April 19, 2005

Baffling in its complexity and often bizarre in its impact, the alternative minimum tax (AMT) is a giant undeclared tax increase, ensnaring tens of millions of moderate-income families in the next several years, says Edmund L. Andrews of the New York Times.

The AMT was created in 1969 to prevent the very rich from using tax deductions to avoid paying a fair share of taxes. If current law remains unchanged:

  • The AMT will require 2.9 million families to pay an average of about $6,000 more this year than what they would owe under traditional calculations.
  • In 2006, the AMT is expected to wring an extra $33.9 billion from 18 million households.
  • In 2010, it will rake in an additional $100 billion and by 2015 an extra $200 billion.

Tax experts have long complained that the AMT is a "stealth tax increase," one Congress never intended and is likely to catch millions of taxpayers by surprise, says Andrews. However, he says, a tax increase through reform could be even stealthier. If the alternative tax is reduced, the offsetting revenue increases are likely to be buried in so many other changes, most people would never know what hit them.

Seen or unseen, the looming tax increases are almost as large as the president's tax cuts, says Andrews. Leonard E. Burman, senior fellow at the Urban Institute, estimated the government would have to raise ordinary income tax rates substantially in every bracket to offset the money lost in each bracket by the elimination of the AMT.

Source: Edmund L. Andrews, "A Tax Increase That Bush Didn't Mention," New York Times, April 10, 2005.

For text:

http://www.nytimes.com/2005/04/10/business/yourmoney/10view.html

 

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