Alternative minimum tax net widens
TEXT OF INTERVIEW
SCOTT JAGOW: Taxes come up every election season. My opponent raised taxes. I cut taxes. Blah, Blah, Blah. But this midterm election, seems no one in Congress is talking about the Alternative Minimum Tax. The AMT is about to strap millions of Americans with a much higher tax bill. The tax was designed for the very wealthy but now, a lot of other people are getting caught in the net. Our economics correspondent Chris Farrell calls it an abomination in the tax code.
CHRIS FARRELL: This is a class tax that is becoming a mass tax. It was a tax that was designed to capture the richest of the rich, and it is capturing more and more middle-income folk. So when someone out on the stump talks about taxes, and they're not willing to talk about the AMT, they're not talking about taxes, they're evading the problem.
JAGOW: Well there's an exemption that expires at the end of this year, which will now bring 19 million people under this AMT and increase their tax bills by an average of $2,400. You would think that they'd be talking about this.
FARRELL: You would think so, because more and more people are gonna get hurt. And you know in 1969 Treasury Secretary goes up before Congress and he testified that 155 taxpayers earning $200,000 and more had not paid any federal income tax and there was outrage. That's about a little over a million dollars in 2006, in current dollars. So then we got the AMT to capture that. But it wasn't indexed to inflation and that was a big mistake so over time it's gradually, gradually capturing more people. Now, the people who really have to worry about the AMT earn between $200,000 and $500,000. This is, I mean they're obviously well off people, but this is not the elite of the elite. But the reason why Congress doesn't want to deal with it, is that if they repeal the AMT, it costs you over the next 10 years, $1.3 trillion in revenue. That's why it's not being repealed.
JAGOW: So what do you think is going to happen with this?
FARRELL: Well I think what Congress is going to try and do is come up with another compromise, another patch. But the patches are not working very well frankly, they're getting worse and worse. And everyone knows you can only do so many patches before you have to confront the problem. What I hope happens is that we go for genuine tax reform. We have to forget this patchwork-quilt approach of just trying to put a Band-Aid over it, simplify the tax code, recognize you have to raise the revenue to get rid of the AMT. How are you going to raise that revenue? You can't evade this problem, bipartisan compromise. And if we don't do it, more and more middle-income Americans are going to be paying more in taxes for the wrong reasons because no one, no one likes this tax.
JAGOW: Alright Chris, thanks a lot.
FARRELL: Thank you.
JAGOW: Chris Farrell is the Marketplace Economics Correspondent. In Los Angeles, I'm Scott Jagow. Thanks for listening and have a great day.