AMT Yields Unintended Consequences
RENEE MONTAGNE, host:
The big news for millions of taxpayers this week is Congress's last minute decision to adjust the AMT. The alternative minimum tax is a dreaded feature of the tax code. It was created decades ago to make sure wealthy people don't deduct their way out of paying taxes.
NPR's Anthony Brooks reports on its unintended consequences.
ANTHONY BROOKS: Bryan Hirsch(ph) is a lawyer in Western Virginia. For years, he's been careful to withhold enough taxes so he doesn't have to pay anything come April 15th. In fact, he usually looks forward to a sizable tax refund, and he thought last year was no exception.
Mr. BRYAN HIRSCH (Lawyer): I thought I was doing well. I thought I actually was going to get between $3,000 and $5,000 back. I found out that, in fact, I was owing about $4,000. It was kind of disappointing because you owe money and you're going to be writing a check instead of getting one back.
BROOKS: Like some four million Americans last year, Hirsch was snared by the dreaded AMT, the alternative minimum tax.
Mr. HENRY AARON, (Senior Fellow, Brookings Institution): The AMT is probably the single most reviled feature of personal taxes in the United States.
BROOKS: That's Henry Aaron, a tax expert at the Brookings Institution in Washington. The AMT was set up back in the 1960s to ensure that the very wealthy, who often have lots of deductions, still have to pay taxes. But over the years, more and more middle-income taxpayers have had to pay the AMT and Henry Aaron says there's a reason why.
Mr. AARON: In contrast to the ordinary income tax, the AMT is not adjusted for inflation.
BROOKS: So this week, Congress approved a bill to increase the amount of income that is exempt from the AMT. Without it, the number of Americans subjected to the tax would have risen from four million to 25 million. But Congress stopped short of actually addressing the problem for good; instead they just fixed it for one year. According to Henry Aaron, that's because to fix it for good or to scrap it would mean admitting that long-term projected revenues would go down and the deficit would go up.
Mr. AARON: That's not something any elected official wants to do, so what they've done is a kind of a game. They make an adjustment this year for next year; and then next year, they make an adjustment for the year after.
BROOKS: Still, the plan will spare millions of Americans to tax increase, but it will also delay refunds for some 38 million others - that's because the IRS says it needs time to reprogram its computers and revise the documents affected by the adjustment to the AMT.
Anthony Brooks, NPR News, Boston.
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