Editorial: Congress creates a tax mess
Dec 29th, 2007 by Afiya
Wednesday, December 19, 2007
There are good reasons why Congress’ approval ratings keep dropping.
The inability to fix problems important to the American people remains the biggest reason for public disapproval of Congress.
A case in point would be the ongoing mess that Congress has allowed to develop over the alternative minimum tax approved by Congress in 1969.
Partisan bickering and intra-party squabbling has again allowed the AMT problem to get worse.
The original AMT was supposed to apply to only 155 of the wealthiest Americans.
Political paralysis in Congress now threatens to scoop up 21 million additional taxpayers across the nation into the tax nightmare that was only intended to prevent a few super-rich Americans from paying no taxes due to tax loopholes authorized by Congress.
Congress should have fixed the offending loopholes rather than establish a parallel taxing mechanism.
Even now, Congress should either fix the AMT problem once and for all by eliminating the tax altogether or by adjusting the tax so it once again applies only to extremely wealthy Americans who pay no taxes.
Also, Congress should require that a revised AMT account for inflation increases.
Instead, it is likely that Congress will only patch the old AMT law for another year to prevent millions of taxpayers, including those in the middle class, from figuring their taxes two ways and paying the higher amount.
Already, Congress’ failure to act on this problem has forced the Internal Revenue Service to send out the 2007 instruction booklet to the printer without any guidance on the AMT.
Inaction also has forced the IRS to push back the date when taxpayers are issued refunds. Normally, the IRS begins issuing refunds in mid-January. Depending on what Congress does, the IRS is estimating that at least 32 million refunds totaling $87 billion could be delayed this tax season.
One of the hang-ups in passing another one-year patch to prevent the AMT from drawing in millions of taxpayers involves whether to pay for the $50 billion patch with other tax increases or spending cuts or simply pass the $50 billion cost along to future generations.
The Senate has passed an AMT patch that ignores the $50 billion revenue that will be lost. The House has passed an AMT patch that is paid for with offsetting tax increases on a few thousand wealthy private equity and hedge fund managers and by closing tax loopholes that have lowered taxes for high earners.
The inability to decide whether to charge an AMT temporary fix to the future or to pay for it now has led to political paralysis.
Congress must act soon to prevent the AMT from hitting millions of middle-class taxpayers. Someday, Congress must pass a permanent solution that is indexed to inflation.
