Dear Senator Grassley,
An article in today's New York times with the header "Repeal of Alternative Tax Gains a Top G.O.P. Backer," describes your position to repeal the Alternative Minimum Tax (AMT). I'm confused about why you'd advocate for this policy change and hopefully you can help clear a few things up for me.
As you must know, the tax was first enacted in 1969 as a type of alternative personal income tax. Basically, too many high income people were claiming too many federal deductions, exemptions, and credits. These wealthy Americans were able to reduce the amount they paid in taxes so much - that many of these high income individuals did not pay any taxes at all.
Congress established this alternative minimum tax to make the tax system more fair - to ensure that wealthier taxpayers could not get away with paying no taxes at all.
This is where your colleagues goofed a bit...they didn't index the AMT properly to make sure that year after year only wealthy people pay the tax. So now in 2005, we see that more and more middle income people are paying the AMT. This goof, combined with the 2001 & 2003 Bush Tax Cuts, means that even more middle class Americans are being forced to pay a tax that was never intended to impact them.
It's my understanding that instead of fixing the AMT (which would also mean lessening the tax burden on the middle class) you'd be in support of repealing the tax all together -- returning us to the pre-AMT world where the wealthiest Americans paid no income tax.
I can't close without saying that repealing the AMT would also be quite pricey. Estimates are that this tax cut would cost $600 billion by 2015.
I guess I'm just confused about two things:
1) Why "throw the baby out with the bath water" by repealing the AMT instead of simply fixing what's wrong?
2) In a time of war and enormous need - why pass another tax cut?
PS - You might want to check out this latest analysis about the repeal of the AMT by Citizens for Tax Justice.
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