Alternative Minimum Tax Could Affect Millions
When people talk about Taxmageddon, most are thinking of the expiration of the Bush-era tax cuts. But there's another little known tax change that could hit 25 million Americans. The modern AMT was created in the 1980s but it wasn't indexed to inflation.
STEVE INSKEEP, HOST:
Now, let's talk about what's at stake for the winners - our latest installment in the series we're calling "Fiscal Cliff Notes."
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UNIDENTIFIED MAN #1: On January 1st, 2013, there's going to be a massive fiscal cliff - of large spending cuts...
UNIDENTIFIED WOMAN #1: From the painful cuts to the Defense Department, food safety, education...
UNIDENTIFIED MAN #2: The Bush tax cuts, the payroll tax cuts...
UNIDENTIFIED MAN #3: Taxmaggedon.
UNIDENTIFIED MAN #4: It's a cliff.
UNIDENTIFIED MAN #5: Whatever your preferred imagery, it's a really big deal.
RENEE MONTAGNE, HOST:
The fiscal cliff is the automatic, across-the-board spending cuts and tax hikes, due to take effect in January; set in motion by last year's debt-ceiling fight here in Washington, D.C. As NPR's Tamara Keith reports, it includes a little-known tax change that could hit some 25 million Americans.
TAMARA KEITH, BYLINE: Here's what accountant Michael Schaffer has to say about the alternative minimum tax, also known as the AMT.
MICHAEL SCHAFFER: No one likes to discuss this. We don't even like to discuss this in the industry, because even we find it dry and dull.
KEITH: Schaeffer works at R.W. Ramsay & Associates, in a suburb of Minneapolis.
SCHAFFER: I was just doing my tax projection for this year.
KEITH: Yes, it's early. But he doesn't like surprises. Thanks to that thing no one really likes to talk about - the alternative minimum tax - it doesn't look pretty.
SCHAFFER: This is going to be a very negative surprise. It actually represents about a 20 percent increase in our taxes.
KEITH: The modern AMT was created in the 1980s, to make sure that high-income people weren't avoiding taxes. But it wasn't indexed to inflation. What would have been high-income back then, is decidedly middle-income now. Roberton Williams, of the nonpartisan Tax Policy Center, says just about every year, Congress comes in and applies a patch. Without it, people with incomes as low as $75,000 a year would get a tax shock.
ROBERTON WILLIAMS: If Congress doesn't act, Turbo Tax will start telling more of us, those big taxes are hitting. Instead of 4 and a half million people being affected, it will be 30 million people affected by the AMT.
KEITH: If Congress comes in with an AMT fix again this year, then Michael Schaffer - and 25 million or so taxpayers - will be off the hook. If it doesn't...
SCHAFFER: There could be torches and pitchforks at the Capitol.
KEITH: But here's the thing about patching the AMT - it's expensive, which is why Congress hasn't made the fix permanent. The Congressional Budget Office estimates indexing the alternative minimum tax to inflation, just in 2013, would add $89 billion to the deficit. That's billion, with a B. Over the next decade, the bill would be more like 800 billion, plus another 130 billion for interest on the debt.
INSKEEP: Tamara Keith, NPR News.
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