House Gives Tax Break to Wisconsin Residents

All that yappaflappa about the eeeeeeeeeeevil House tax bill--and hardly a peep about its most significant "tax break" for Wisconsin residents: the continuation of the exemption from the Alternative Minimum Tax.

Who likes the AMT? Other than Big Spenders, few. Opposed? The IRS's National Taxpayer Advocate has recommended that the AMT be repealed; so have the American Institute of Certified Public Accountants, the American Bar Association's Section on Taxation, the Tax Executives Institute, and Congress's own Joint Committee on Taxation.

The biggest problem:

The most important features of the regular income tax (the tax brackets, standard deduction, exemptions for dependents, and so on) have been automatically indexed for inflation annually since 1985. The AMT is not indexed. Congress has periodically raised the exemption amounts for the AMT, but not fast enough to keep pace with inflation. The exemption of $20,000 that applied in 1979, the first year the AMT went into effect, is more than $53,000 in today's dollars. [May, 2001 report.] The current exemption amounts, in place since 1993, are $45,000 for married couples filing jointly (half that for each spouse if they file separately), or $33,750 for single filers or heads of households. To adjust for inflation since 1993, the exemptions would have to be raised to approximately $54,000 for married couples filing jointly and $41,000 for single filers.

What happens if Congress does NOT act to delay/reduce the AMT?

Absent action by Congress and President Bush, one in four households will owe the alternative minimum tax by 2010.

Some 52 percent of them will be families making $100,000 or less a year, including 73 percent of households making $75,000 to $100,000 and 37 percent making $50,000 to $75,000.

Married couples -- especially couples with lots of children -- are most apt to be hit by the alternative minimum tax, which prohibits deductions for dependents along with write-offs for mortgage interest, state and local taxes, medical expenses and the like.

Let's be clear: Wisconsin's State/Local tax burden is horrible--and the AMT makes it far worse. And let us point out that $75K in income is not all that much for a two-earner family in Wisconsin.

Capgains? Dividend taxes? These, too, should be reduced. But the AMT should be eliminated. Make sure your Congresscritter knows it.