Tags: AMT | tax | wealth | middle class

CNNMoney's Sahadi: Alternative Minimum Tax Is 'Still Alive and Complicated'

By    |   Thursday, 09 April 2015 07:40 AM

The Alternative Minimum Tax (AMT) was designed to keep the wealthy from using loopholes to avoid taxes, but ended up snaring the middle class, because it wasn't indexed for inflation.

In other words, the maximum amount of income one can make without being subject to the AMT didn't regularly increase, despite the fact that inflation was putting many taxpayers' income above the threshold.

In 2012, Congress agreed to indexing in what was supposed to be a permanent fix for the AMT.

"But that doesn't mean the so-called 'wealth tax' was simplified or eliminated," writes Jeanne Sahadi of CNNMoney. "The AMT is still alive and complicated."

Congress permanently indexed the amount of income exempted from the AMT to inflation. "Those income levels, however, are still fairly low ($52,800 for singles this year; $82,100 for married couples filing jointly)," she explains.

"And the set of rules that governs what can and can't be deducted under the AMT means it's still hitting a fair number of people for whom it was never intended--those in the middle class and upper middle class."

The AMT "hits about a third of households making between $200,000 and $500,000 and more than half of those earning between $500,000 and $1 million," Sahadi notes.

Meanwhile, Wall Street Journal reporter Josh Zumbrun offers interesting analysis of the Labor Department's latest consumer expenditure survey.

For example, the data explain why rising food and housing prices present a major problem for many Americans, even though inflation is very muted overall, he maintains.

The reason: "low-income Americans spend a disproportionate share of their money on food and housing," Zumbrun says. Consumer prices were unchanged in the 12 months through February.

The Labor Department report shows that those of us in the bottom 10 percent of income allocate 42 percent of our spending to housing and 17 percent to food. But the wealthiest 10 percent of us devote only 31 percent of our spending to housing and 11 percent to food.

"This underscores one reason that inflation feels different household to household: people spend their money in such different ways," Zumbrun explains.

Perhaps the best solution to this problem would be to raise the income level of all Americans, so those at the bottom of the wealth totem pole don't have to worry so much about increases in food and housing prices.

Most of us would surely agree to this prescription, but on the issue of how to achieve it, reaching a consensus would be very difficult.

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The Alternative Minimum Tax (AMT) was designed to keep the wealthy from using loopholes to avoid taxes, but ended up snaring the middle class, because it wasn't indexed for inflation.
AMT, tax, wealth, middle class
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2015-40-09
Thursday, 09 April 2015 07:40 AM
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