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> From: MONEY Daily <moneyadm@xxxxxxxxxxxxxx>
> To: MONEYDAILY@xxxxxxxxxxxxxxxxxxxxxxx
> Subject: MONEY Daily: Tax Matters
> Date: Monday, August 25, 1997 6:08 PM
>
> For an enhanced HTML version of the Money Daily,
> visit http://moneydaily.com.
>
> Tuesday, August 26, 1997
>
> Tax Matters
>
> More bad news in the new tax law: You could get
> stung by the Alternative Minimum Tax
>
> By Ryan J. Donmoyer
>
> WASHINGTON -- There is a ticking bomb in the
> tax code, and millions of Americans could end up
> paying more taxes in the next 10 years because
> of it.
>
> A small but growing number of tax experts in
> the nation's capital are clamoring for an overhaul
> of the individual Alternative Minimum Tax. The
> AMT is a complex monstrosity originally crafted
> to make sure the richest Americans do not avoid
> taxes by claiming endless credits, deductions,
> and shelters. It is essentially a flat tax --
> although not one that many people want to pay.
> Unless something is done, experts say, it won't
> be just the rich who have to spend the extra
> time and expense determining whether they
> have to pay Uncle Sam more -- it will be the
> middle class.
>
> Why? Because inflation is eroding the
> exemptions and brackets that are supposed to
> ensure that 99 percent of taxpayers do not have
> to pay the AMT. Problem is, the AMT is not
> indexed for inflation -- as the standard tax
> system is. Factor in the recently enacted non-
> refundable child and tuition credits -- two
> "preference items" not allowed under the AMT --
> and more people than ever risk finding
> themselves in the "AMT trap."
>
> Only 414,000 taxpayers paid the AMT in 1995,
> according to the IRS. But according to Congress'
> Joint Committee on Taxation, that number could
> grow to 6.2 million by 2005, assuming an
> inflation rate of about 3 percent a year. The JCT
> estimates that by 2005 a family of four with an
> income of $58,300 in 1996 dollars will be subject
> to the AMT, "an unacceptable situation,"
> according to Kenneth Kies, the JCT's chief of staff.
>
> Find yourself owing the AMT, and say goodbye
> to your personal property tax deductions, your
> state and local tax deductions, and the
> deductibility of interest on a home equity line of
> credit. Say hello to a flat 26 percent tax on your
> taxable income up to $175,000 (28 percent over
> $175,000) with only one $45,000 exemption
> ($33,750 for single taxpayers).
>
> If there is even a chance that you trigger the
> AMT, you must calculate it, according to Rick
> Grafmeyer, national director for tax legislation at
> Ernst & Young; in addition to the 414,000 who
> actually paid the AMT in 1995, another 3.8
> million taxpayers filed the necessary form, the
> IRS says. Naturally, if you owe more under the
> AMT than under the regular tax, you must pay
> the higher liability, the law says. Fail to calculate
> the AMT and the government will send you a bill
> if it finds you owe it.
>
> Lawmakers are well aware of the bracket creep
> in the AMT, but they chose not to do anything
> about it with the Taxpayer Relief Act of 1997,
> lobbyists and analysts say. "If there had been
> any concern whatsoever for tax policy in this tax
> bill, the AMT would have been included," snorts
> Bennet Minton, a legislative policy analyst for
> the Washington law firm Miller & Chevalier.
>
> Sources say lawmakers decided not to tackle the
> burgeoning situation because the media and
> taxpayer groups have not been vocal about it.
> Others suggest that they passed on the issue
> because reforming the AMT could be the perfect
> vehicle to drive another tax bill next year -- one
> that conceivably would contain tax breaks for
> special interests, as all tax bills do.
>
> Whatever the reason for the inaction, Grafmeyer
> agrees that the problem must be dealt with
> before it gets too painful. "If we don't fix it now,
> in 5 years it's going to cost real money," he says.
> Depending on what happens in the economy,
> things could get even worse in a hurry: "If we
> were in times of 6 or 7 percent inflation, we'd
> have a real problem."
>
> Meanwhile, Grafmeyer adds there's a more
> immediate issue: The Taxpayer Relief Act of
> 1997 only exacerbates the problem.
>
> He calculates that a family of six earning $60,000
> could trigger the AMT if they claimed the new
> $500 per child tax credit. Assuming ordinary
> exemptions and itemized deductions, this
> hypothetical family would have a tax due of
> $5,294, according to Grafmeyer's calculations.
> Subtract $2,000 in child credits (four children at
> $500 a piece), and the bill comes to $3,294. The
> same family would owe $3,705 under the AMT,
> which means they would lose $411 in credits.
>
> "We didn't even calculate the education credits,"
> he notes.
>
> Citizens for Tax Justice, a nonpartisan advocacy
> group in Washington, says 400,000 families
> could lose all or part of their child credit in 1997
> because of the AMT. Factor in the inflation bite
> and the problem only gets worse over time; 2
> million taxpayers in 2002 would have lost all or
> some of their child credit, according to some
> congressional estimates.
>
> As the AMT begins to take a bite out of the
> middle-income tax savings in the much-vaunted
> new tax cut, this is sure to be an issue you'll be
> hearing more about. In the meantime, you can
> sound off about the new law in Money Online's
> Briefing Room at
>
> http://cgi.pathfinder.com/cgi-bin/boards/read/267/3
>
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