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Acting IRS Commissioner–Steven T. Miller–recently wrote to members of congress urging the passage of what has become an annual emergency: An Alternative Minimum Tax (AMT) “Patch” to prevent millions of taxpayers from losing out on critical deductions and effectively paying higher tax rates. Furthermore, in the absence of quick resolution, the 2013 tax filing season (tax year 2012) could be delayed up to a month preventing many millions more from filing their tax returns early and receiving refunds they depend on.
The AMT is imposed on individuals & businesses at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (also known as exemption). This exemption is substantially higher than the exemption from regular income tax. However, the main problem with the AMT is that when it was imposed in the 1980’s, it was not adjusted for inflation. Thus, incomes in the 1980’s that were considered high and subject to them AMT, started to affect taxpayers in lower income tax brackets in the 21st Century, hence the need to raise that threshold repeatedly with these “patches” because a lower AMT income threshold equates to paying more in taxes.
Taxes were a major theme in this past highly contentious election cycle with President Obama specifically campaigning on a return to Clinton-Era tax rates for those making over $250,000 a year. While this AMT patch should be addressed on it’s own, the impending “Fiscal Cliff”–where automatic spending cuts kick in and the “Bush Tax Cuts” expire for everyone–could affect these negotiations…and that would be a mistake. These are all important problems that need to be addressed. However, with the economy still on the road to recovery, the taxpayers that desperately need credits, deductions and timely refunds just to make ends meet should not be made to bear the brunt of Congressional inaction. Therefore, let us hope that this current AMT patch does not get tangled up in the discussions of the next “Grand Bargain” and is addressed with the seriousness and expediency which acting Commissioner Miller is urging. After the dust settles from this showdown, perhaps our government can start to discuss and address the real problems of what has obviously become a piece-meal, bloated and loop-hole riden tax code.