The burden of the AMT on the People

It's tax time, so there are of course going to be quite a few editorials complaining about taxes right about now. Fully expect people to bemoan how the top 1% has to pay more taxes than any other 1% in the country and how everyone in the country is part of a middle class family just trying to get by. We have a couple of editorials in the latter category, talking trash about the alternative minimum tax.

The LA Times is saying that the AMT should be reduced. No explanation of why that would be a good thing; only a naming who the intended AMT payers were (as if Congressional intention from 1969 is the most valid reason to do anything nowadays). Here's a bit:

But when Congress created the AMT, it made a major mistake: It failed to index it to inflation. So a tax designed to affect only the affluent is increasingly being paid by middle-income taxpayers, including some married households with annual incomes as low as $100,000.

It says that providing for the lost revenue will be "unattractive" to presidential hopefuls. So I guess we just raise up our hands and give up the fact that they'll want to look good, decrease the tax, and increase the national debt.

The NY Times provides a few more numbers:

As a result, only an estimated 3 percent of alternative-tax payers for 2006 are tax-sheltering multimillionaires. Most people who owe the tax make between $200,000 and $500,000; nearly a fourth make $75,000 to $200,000. In those groups, the most common breaks are write-offs for children and for state and local taxes — hardly aggressive tax shelters. Yet, on average, the alternative tax has boosted those filers’ 2006 tax bills by an estimated $4,200.

Wait, didn't the LA Times just say that these were middle-income families? If someone's making between $75,000 and $500,000 a year, I would hardly consider them middle-income in a country where the average household income is $46,000, in a country with the largest GNP in the world. But, of course, no one wants to be labeled as wealthy, even if they are. I wonder what class I would consider myself in if I made half a million a year. I hope I would have the decency to not say that I was middle class.

In fact, the Boston Globe has joined the chorus and is calling people paying the AMT middle-income as well:

Meanwhile, millions of families of more modest means will be subject to the AMT, which in effect limits a taxpayer's ability to take deductions for dependents, state and local taxes, and other common items. The alternative minimum tax, coupled with President Bush's first-term tax cuts, have shifted the tax burden away from the wealthiest Americans and toward middle-class and upper-middle-class families.

But I digress. The NY Times does bring up the issue of the largest loophole in the AMT: capital investment.

Which brings us to the real hot-button issue. The alternative tax should be reformed so that it does what it is supposed to do: make wealthy taxpayers with excessive tax shelters pay up. The wealthier one is, the more of one’s income is from capital gains on the sale of investments rather than wages and salaries. Capital gains come with a huge advantage: they’re taxed at 15 percent versus a top rate of 35 percent for ordinary income. The lower rate for capital gains is one of the biggest breaks in the code. But under the law, capital gains are not classified as sheltered income subject to the alternative tax.

Funny how after years of an all-Republican government led by Bush that money made from not doing anything is taxed less than money made by doing something productive. It almost seems like we're rewarding people for being lazy.

Sure, the AMT should be set to adjust for inflation, because eventually $75,000/year will be middle class, and eventually the new poverty line. But let's not make it seem like people with incomes between 200 and 500 thousand dollars are struggling, working people who'll be broken by having to pay $4200 for a government that benefits them quite well. And let's have an alternative source of income in mind if we decide to cut that alternative tax.