NPR

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.

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Transcript

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."

(SOUNDBITE OF BROADCAST MONTAGE)

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.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

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