Middle-Class to be Burdened by Hidden Tax in 2010
April 19, 2004
Though the Alternate Minimum Tax (AMT) is affecting primarily the wealthiest of families today, the middle-class will be stuck with higher tax bills in the not-too-distant future if existing laws are not changed, says the Wall Street Journal.
The causes for the projected increase in the number of AMT payers are two-fold. First, the Bush tax-cuts reduced tax rates which, due to the mechanism through which AMT liability is calculated, leave more taxpayers vulnerable. The Bush tax cuts provided higher exemption levels from the AMT, but these are set to expire in 2005. Second, the AMT is not indexed for inflation.
Many wealthy families have already found that paying the AMT more than offsets the Bush tax cuts. This additional tax burden will afflict millions more families in the years to come. According to the Journal:
- In 2004, about 3.3 million mostly upper income taxpayers with a lot of dependents will be affected by the AMT.
- When temporary exemptions from the AMT expire in 2005, the number of affected taxpayers will increase to approximately 12.3 million.
- Six years from now, 25 to 33 percent of all taxpayers will be paying the AMT -- some 30 to 36 million of them -- including many middle-income taxpayers with small families.
In addition, people living in high-tax states are more vulnerable than those in low-tax ones. In 2000, 58 percent of AMT payers lived in high-tax states and only 18 percent in low tax states.
Source: Editorial, "The Blue-State Tax," Wall Street Journal, April 13, 2004.
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