The country’s onerous bailout bill heads to the Senate today, with added tax provisions. Here’s the tax portion’s evolution, according to the AP:
Last week: Senate passes first tax plan with a 93-2 vote. Provisions:
-Alternative minimum tax relief
-$8 billion tax relief for victims of natural disasters in Texas, Louisiana, and the Midwest.
-$78 billion towards renewable energy incentives and tax-break extensions.
After Republican feedback, the following was altered in the bill:
-No AMT relief
-No disaster provisions
-Revenue offsets for a portion of tax-break extensions and renewable energy incentives
The House saw the bill, and said the tax-break extension and renewable energy portions should be completely offset by the government.
The AP says that if the alternative minimum tax disappears, more than 20 million Americans will get tax relief.
The alternative minimum tax, first implemented in 1969, means extra paperwork, increased complications, double taxation if you live abroad, no state, local or foreign tax deductions, and generally a huge headache if you make between $150,000 and $415,000/year (I would define this as upper middle class). If it sticks around in its current form, its lack of indexation will force it into lower and lower income brackets. Lots of people won’t miss it.
Except for the government. Wikipedia quotes the Washington Post on this point:
By 2008, it would cost the Treasury considerably less to repeal the ordinary income tax system than the alternative minimum tax, according to the Tax Policy Center, jointly run by the Brookings Institution and Urban Institute.
The challenge is to tax higher earners proportionally to their income, without robbing them blind. If you’ve ever faced the dreaded AMT, you know that it makes tax time more confusing and troublesome than it needs to be, with potentially infuriating consequences if you don’t loophole it correctly.
There has to be another way.