WASHINGTON -- The alternative minimum tax, designed to trap affluent tax evaders, ensnares more and more middle income families, and House lawmakers want to limit its reach next year.
The alternative minimum tax system imposed higher taxes and extraordinary complexities on 3 million taxpayers this year. About 11 million more taxpayers can expect to pay the tax next year.
"AMT is supposed to check wealthy tax dodgers, not middle income families catching a break," said House Majority Leader Tom DeLay, R-Texas.
The alternative minimum tax forces some taxpayers to run through a long series of calculations designed to determine a theoretical minimum tax. Many of the exemptions and deductions many taxpayers use to lower their tax bill don't apply.
The House wants to stop those 11 million taxpayers from falling into the tax by freezing it in place next year. A Republican-drafted bill being debated Wednesday would do that by allowing taxpayers to exempt from the tax as much of their income next year as they can this year.
Democrats plan to offer their own solution to the tax and its complexities. Under their plan, single individuals who earn $125,000 or less and couples who earn $250,000 or less would be exempted from paying the alternative minimum tax. The cost of the bill would be covered by closing other tax shelters.
House Minority Whip Steny Hoyer, D-Md., said Democrats offer a more elegant solution that would save millions of taxpayers from vexing calculations.
Nevertheless, many Democrats might support the GOP bill because they "don't want to be in a position where they can be demagogued in 30-second ads," he said.
Taxpayers typically run into the AMT for one of two reasons. Some end up with more taxable income than expected at the end of the year because of a large bonus, capital gains or other income.
Others have a combination of factors ignored in the AMT tax system, such as high state taxes, a large amount of unreimbursed employee expenses or a large number of personal exemptions for children or dependent parents.
Nina Olson, the government's taxpayer advocate, put the AMT at the top of her annual list of most vexing problems facing taxpayers. She called it "a time bomb on a short fuse."
The bill is H.R. 4227.
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