New Analysis from
CTJ Shows AMT Can Be "Fixed"
in a Progressive, Revenue-Neutral Way
The alternative minimum tax (AMT), which was originally intended to ensure that the wealthiest Americans pay at least some tax regardless of how many tax breaks they could otherwise claim, will affect 17 percent of taxpayers in 2007, rising to 23 percent of taxpayers in 2010. This is partially because President Bush's tax cuts were not accompanied by adjustments to the AMT and also partially because the exemptions that keep the AMT from applying to most people have not kept pace with inflation. A
new analysis
from Citizens for Tax Justice shows that there is a way to adjust
the AMT -- without increasing deficits -- to ensure that the
majority of it is paid by the richest one percent of taxpayers.
Many
Democrats have expressed an interest in changing the AMT in the next Congress. Several lawmakers have expressed alarm that a significant number of voters will suddenly have to pay a tax that never applied to them before if Congress does not act. The
problem is that the AMT is expected to bring in $250 billion in revenue
in the next four years, so repealing it altogether would be outrageously
irresponsible. The solution offered by CTJ allows for the same amount of
AMT to be collected and also ensures that the tax will serve its original
purpose -- to guarantee that the very wealthiest pay their fair share.
Congressional Lame Ducks Leave a Tax Mess
So Much
for Tax Simplification
One
of the last acts of the Republican-controlled 109th Congress before adjournment
was to extend several tax breaks that have already expired. Since the IRS
has already finalized and begun printing its paper tax forms for the 2006
tax year, the agency is now instructing taxpayers to take all sorts of
bizarre steps to utilize breaks included in the "tax extenders" package.
For example, BNA reports that
those who wish to claim the newly extended tuition deduction must go to
a line on the 1040 tax form originally meant for the domestic production
deduction and write a "T" on the line. Those who want to take both the tuition deduction and the domestic production deduction must write a "B" on
the line. While this will obviously cause confusion and administrative
headaches, critics such as Senator Max Baucus (D-MT) have warned for months
that Congress's procrastination on the tax extenders would lead to real
problems.
Benefits
of "Tax Extenders" Seem Doubtful
This
administrative mess is the last of a long line of embarrassments tied to
the tax extenders. The package was originally part of the 2005 tax reconciliation
bill that was finally passed in 2006. Then it was attached to the pension bill, and then hitched to Republicans' bill to gut the estate tax which died in the Senate.
The tax extenders include $16.5 billion for research conducted by profitable companies who claim they can't function in the free market, and a $3.3 billion tuition deduction and a $5.5 billion sales tax deduction which both offer more help to wealthy families than to poor and middle-income families. The extenders include billions more to benefit everyone from restaurant-owners to teachers who for some reason are expected to pay for classroom supplies out of their own pockets. During the last week of negotiations, the Republicans leaders also decided to attach provisions that encourage the use of Health Savings Accounts,
the tax shelters that largely benefit the wealthy and encourage them to
pull out of traditional healthcare plans, likely making them more unaffordable
for middle-income families in the long-run.
The bill, (H.R. 6111) turned
into a vehicle for all sorts of unfinished business. The tax extenders
were attached to provisions meant to expand international trade, provisions
authorizing offshore drilling in the eastern Gulf of Mexico, and extensions
for several tax breaks related to energy, many of which are meant to encourage
the development and use of alternative fuels. Hopefully the 110th Congress
will think tax policy is serious enough to warrant a little more focus.
New ITEP Paper Addresses
Louisiana's Special Legislative Session
Louisiana lawmakers are wrapping up a ten-day special legislative session called by Democratic Governor Kathleen Blanco. The session was prompted by new estimates suggesting that the state's short-term budget surplus could exceed $2 billion --
although it's far from clear whether these short-term surpluses are masking
long-term deficits. Blanco's goals for the session included a $300 million incentive package to
lure a new steel mill to the state, plus a package of income tax
cuts. The tax cuts are gaining steam --
although a new ITEP analysis shows that some of these tax cuts would make Louisiana's already-unfair tax system even worse.
Other News
Illinois
Businesses Offer Solutions to Fiscal Crisis
"When a group of businessmen issue a report that basically says they need to be taxed more to help get the state out of financial trouble, you know the state's fiscal situation is awful," says an editorial in
the Rockford Register Star. The Civic Committee of the Commercial
Club of Chicago issued a report earlier
this month which warns "Illinois is headed toward financial implosion." The Committee's report describes the state's long term structural deficit and offers their own recommendations including corporate tax rate hikes and sales
tax base expansion. The report cites the Center on Tax and Budget Accountability a
group that has long advocated for reforming the state's tax code through
an income tax/property tax swap. Illinois will be a state for advocates to watch in the new year more voices call for long-term tax reform.
Kentucky - More Change to the State's AMC
If
some Kentucky legislators have their way, the Alternative Minimum Calculation (AMC), which is the state's alternative minimum tax paid by businesses, may be on its way out. According to the Louisville Courier Journal, the state has numerous unmet needs and faces a structural deficit, yet some legislators would rather spend the temporary budget surplus on permanent tax cuts for businesses. Earlier this year, the state held a special session where aspects of the AMC were amended to help small businesses. As a result, those with less than $3 million in gross profits are now exempt from the tax and those with gross profits of less than $6 million enjoy a reduced tax rate. But apparently that's not enough for some legislators and business people. Concerning
the repeal, Tom Underwood, state director of the National Federation of
Independent Business says, "It's not going to hurt anybody's feelings if it is repealed altogether." Maybe
he meant anybody except the Kentuckians who will have a harder time paying for schools and and healthcare if
the tax is eliminated.
California's "ReadyReturn" Tax
Assistance Program is Back
California
tax administrators are reviving, and expanding, a clever taxpayer-assistance program that was tested in 2005--and suspended in 2006 after heavy lobbying by tax-software giant Intuit. The idea behind ReadyReturn is simple: many taxpayers have very simple income profiles (wages only, all received from a single employer), and the government gets the same W-2 forms from employers that these taxpayers get at the end of each year. Instead of sending these taxpayers a blank tax form in the mail, why shouldn't tax administrators send
them a filled-out form that actually estimates their income tax?
Not
everyone is happy with this idea, of course. Intuit has used its lobbying
clout to try to kill the program and defeat elected officials advocating
it, presumably because every ReadyReturn customer is one more person who
won't purchase Turbo Tax. One editorial board thinks the
state isn't doing a good enough job implementing this idea. And one
tax blogger argues that the best way to make filing income taxes simpler would be to actually simplify the tax laws.
But
it's a promising approach to tax administration. When you make it easier
for people to file their income taxes, they become much less grumpy about
helping to pay for important public services. California's experience with this program should
give the rest of the nation a good preview of the potential benefits --
and the limitations -- of this approach to taxpayer assistance. Glowing
editorial praise for the program can be found here and here: the Talking Taxes blog has more details here.
Going Away
for the Holidays
