AMT: the stealth tax at the cliff

Beyond the discussion abound of targeting our retirement investments, could this be a more immediate alternative that Capitol Hill might aim for, requiring no action on their part?

WashingtonWire: The fiscal cliff is made up of lots of different components. But one of the most important – if little-understood – is the alternative minimum tax.

The AMT is a sort of stealth tax that hits people when they accumulate too many deductions and other breaks. It was originally adopted to make sure that the very wealthy don’t avoid paying tax altogether. But in recent years it’s begun to affect more middle-class households. In part that’s because it’s not automatically indexed for inflation.

So every year or two, Congress passes an AMT “patch” to exempt most of the people affected. For 2011, the exemption was $74,450 for married taxpayers filing jointly, and $48,450 for individuals. Because of the exemption, only about 4 million taxpayers paid the AMT for 2011.

But the last patch expired at the end of 2011. Unless Congress does something by the end of December, the AMT exemptions revert to $45,000 for married taxpayers and $33,750 for individuals. That means about 28 million more households would owe “very large, unexpected” AMT liability for 2012, according to the IRS, and they would owe the tax on the returns they file in the spring of 2013.



A surprise tax? As if ObamaCare and the economic slump aren't enough. And it would still only make a dent in paying down the debt, if they even had that in mind (which they don't). However, good news for all those who voted Obama and Democrats back into office...

From a political standpoint, it’s hard to imagine a better formula for sparking a taxpayer revolt than to impose a large, unexpected tax increase with little or no warning.

The impact would be concentrated in more affluent and urbanized states, particularly those with high state and local taxes (the federal deduction for state and local taxes is one of the breaks that frequently pushes people into the AMT). California’s number of AMT filers would go from 685,000 to more than 5.5 million, according to the Congressional Research Service. New York would go from 477,000 to about 3.9 million. New Jersey would go from 265,000 to almost 2.2 million.

That makes the AMT a tax increase that could hurt Democratic lawmakers as much as Republicans – and maybe more because the states most affected tend to be blue ones.

Middle class Democrats paying their fair share and spreading their wealth around too. Oops. Those Staten Islanders sure aren't gonna be any happier with the regime.