Alternative Minimum Tax (AMT) Update

Yesterday Edmund L. Andrews, of the New York Times published a piece called House Backs Tax Relief Bill, but Fate in Senate Is Unsure.

The bill, approved by the house Friday [November 9, 2007], would shield about 21 million people from the alternative minimum tax next year, and pay for it in part by ending tax breaks for private equity funds, hedge funds and other partnerships.

But the bill, approved 216 to 193, faces a highly uncertain future in the Senate. Republicans are staunchly opposed to any tax increases, and some Democrats are torn between appealing to their party instincts and alienating some of their big contributors.

The alternative tax has exploded in the last six years and is set to hit people with incomes as low as $50,000 – something it was never intended to do.

“The A.M.T. is crazy; it was never meant to apply to middle-class taxpayers,” said Representative Jim McCrery, Republican of Louisiana.

Warning: political commentary:

What is really crazy is President Bush’s threatened veto of the bill:

President Bush has already threatened to veto the bill, which also includes extensions of several other tax provisions, if it includes higher taxes that would shift more of the tax burden to the wealthy. He argues that Congress should freeze the alternative minimum tax without trying to make up the $50.6 billion revenue loss for the 2007 tax year.

In other words, the current bill is revenue neutral but, wary of increasing taxes on the wealthiest 1% of the people in the country, the President thinks its better to increase the deficit – and let portions of the middle-class bear the burden for a shortsighted bill that was intended to help them.

If Congress fails to act within the next few weeks, the alternative minimum tax will hit 21 million families with an average tax increase of $2,000 on their 2007 tax returns.

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