‘Fiscal Cliff’ Could Put Millions of Taxpayers Into ‘AMT Shock’

[FarCenter]

One of the key questions lurking in the "fiscal cliff" talks — though well below the public's radar — is what happens to the alternative minimum tax, or AMT.

Implemented in 1969 to make sure upper-income Americans pay their share of taxes, the AMT has increasingly snared more middle-income Americans over the years because it was never indexed for inflation.

During the 2011 tax year for example, the AMT hit single taxpayers with incomes as low as $48,450 and joint filers making only $74,450.

But millions more Americans could be subject to the AMT in their 2012 returns if Congress fails to reach a deal on the fiscal cliff before year-end. That's because the AMT is currently scheduled to hit individuals making as little as $33,750 a year and joint filers making $45,000.
...
"I call it AMT shock," Dick Hoey, chief economist at BNY Mellon, told CNBC recently.

"Normally some four million people pay the AMT," Hoey explained. "But if we don't fix this on the 2012 income, what's due in 2013 will be additional taxes by an extra 28 million households.
http://www.cnbc.com/id/49981664

This would hit taxpayers in high tax states or with big mortgage interest deductions particularly hard.

[aikoaiko]

1. Is single filer at $48,450 and joint filers at $74,450 gross or taxable income?

[FarCenter]

4. It's more like gross than taxable, since a number of deductions are added back in

See IRS Form 6251 and Instructions, but note that the standard deductions for 2011 would not apply since they reflected the "AMT Patch" for 2011, which would not be in effect for 2012 unless congress acts to re-implement a patch.

In particular, state and local tax deduction and parts of medical and mortgage interest deductions are added back in before the AMT calculation.

[still_one]

2. and if they have to wait until the new Congress comes in to get something done so be it /nt

[FarCenter]

5. The new Congress is essentially the same as the old Congress

In particular, the numbers didn't change much and the leadership is pretty much exactly the same.

[still_one]

6. I disagree. Not only do we have a 10 lead advantage in the Senate, we picked up seats in the house.

Most important, the Senate means we will control who gets appointed in the courts

[FarCenter]

7. If anything, the next congress will be more polarized

The two additional senators get to 55, not the 60 needed without filibuster reform. And there are 7 senators running in '14 in states that Romney carried.

There were 8 additional representatives, but a lot of the ones voted out were moderate Rs and Ds, so the middle is largely vacant in the House. So any bill will have to be passed by the Republican majority with very little help from Democrats. Therefore, bills passed by the Rs in the House will be unacceptable to the D controlled Senate.

[ProSense]

3. Fiscal cliff fear

is irrational.

The Washington Post was so upset over President Obama's latest budget proposal to Republican congressional leaders that it used a front page editorial to complain to readers. While the article included several comments from Republicans warning of the dangers of President Obama's not yielding to their demands. It added the additional assertion that the deadlock is occurring:

"with time running out for policymakers to agree on a plan to prevent more than $500 billion in tax increases and spending cuts that could rattle the economy."

This statement grossly misrepresents the reality, since the time will run out "to prevent more than $500 billion in tax increases and spending cuts" more than a year from now. We don't see all of these tax increases and spending cuts on January 1, as the article would lead readers to believe. They would only take place over the course of a full year if Congress and President Obama never reached a deal. For this reason, there is not much reason for concern that the failure to reach a deal by January 1 "could rattle the economy."

- more -

http://www.cepr.net/index.php/blogs/beat-the-press/another-front-page-washington-post-editorial-on-the-budget