Is AMT Really So Bad for DC Tax Payers?
No one likes the Alternative Minimum Tax. The worst thing about it is that you don't know if you will have to pay it until you calculate your taxes after the close of the year in which you made tax-planning decisions. This means that the charitable donation you made or the crappy stocks you sold for a loss might end up null and void on your return if you are hit with AMT, which makes you pay a minimum rate of 26% or 28%.
I screamed foul the first time I was hit with it but am now coming to like it more. First of all, it is a flat tax. Its rate is way too high for a flat tax (and used to be 20% before Reagan, of all people, raised it). If everyone paid AMT then the tax code would be simplified into a few paragraphs instead of the mind-boggling mess that it now is.
Second, it treats local property tax deductions as tax shelters. We in high tax places like DC hate this, but why should every US taxpayer subsidize expensive local governments? By making state taxes non-deductible perhaps there would finally be pressure to ease them. Also, anyone in a high tax state or DC would benefit hugely from a flat tax, as the current progressive tax rates severely punish those who live in expensive places, where $100K does not go so far as it does in Boise and we are basically paying their bill.
Third, the AMT treats dependent deductions as tax shelters. I have always been baffled and annoyed at how people with children pay much less in taxes than do those without children. The market side of me says that they should pay more, as they use more services, but I can go socialist and agree that should pay the same. But in what strange calculus should they pay less?
Fourth, by pushing the middle class into paying taxes that more closely resemble their service consumption perhaps the populace will become more aware of the expense of government.
As a self-employed person in DC my marginal tax rate is about 60% plus I have to pay for health insurance out-of-pocket and don't get the favorable tax treatment that corporate employees do. At my rate, I welcome AMT but, unfortunately the calculation is "which is higher, ordinary tax or AMT?" and at this point I would rather pay AMT.
I screamed foul the first time I was hit with it but am now coming to like it more. First of all, it is a flat tax. Its rate is way too high for a flat tax (and used to be 20% before Reagan, of all people, raised it). If everyone paid AMT then the tax code would be simplified into a few paragraphs instead of the mind-boggling mess that it now is.
Second, it treats local property tax deductions as tax shelters. We in high tax places like DC hate this, but why should every US taxpayer subsidize expensive local governments? By making state taxes non-deductible perhaps there would finally be pressure to ease them. Also, anyone in a high tax state or DC would benefit hugely from a flat tax, as the current progressive tax rates severely punish those who live in expensive places, where $100K does not go so far as it does in Boise and we are basically paying their bill.
Third, the AMT treats dependent deductions as tax shelters. I have always been baffled and annoyed at how people with children pay much less in taxes than do those without children. The market side of me says that they should pay more, as they use more services, but I can go socialist and agree that should pay the same. But in what strange calculus should they pay less?
Fourth, by pushing the middle class into paying taxes that more closely resemble their service consumption perhaps the populace will become more aware of the expense of government.
According to the Census Bureau, the median household had a before-tax income of $40,816 in 1999, an after-tax income of $33,676, and paid $7,140 in total taxes, for an effective tax rate of 17.5 percent...17.5% is low enough, but the average US family of four pays a 4% federal tax rate, lower than the median and almost completely shielding them from government decisions that increase taxes.
According to the CBO, those in the top 20 percent (quintile) of the income distribution now pay 78 percent of all federal income taxes.
As a self-employed person in DC my marginal tax rate is about 60% plus I have to pay for health insurance out-of-pocket and don't get the favorable tax treatment that corporate employees do. At my rate, I welcome AMT but, unfortunately the calculation is "which is higher, ordinary tax or AMT?" and at this point I would rather pay AMT.
posted by Leonardo at 8:54 PM
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