Congress Averts Higher Tax Bill for Middle Class

[onehandle]

Source: New York Times

WASHINGTON — Congress on Wednesday gave final approval to a plan that will spare millions of middle-class taxpayers higher tax bills for 2007. The White House welcomed the development and said President Bush would sign the bill.

The tax reprieve postpones for one year only an expansion of the alternative minimum tax, a parallel tax system enacted in 1969 to prevent very wealthy investors from using deductions and tax shelters to avoid paying income tax altogether. The alternative tax has ensnared a growing number of middle-class Americans in recent years because the 1969 law was not indexed to inflation.

Without the fix by Congress, some 25 million filers would have had to pay the tax on their 2007 income, up from four million who paid it on 2006 income, according to the White House.

The Bush administration took a swipe at Congress, saying that the late action by lawmakers might still cause delayed refunds for up to 38 million filers.

Read more: http://www.nytimes.com/2007/12/20/washington/20cong.html

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The Democratic Congress just lowered taxes. 2008 is ours.

[annabanana]

1. Why the hell won't they index this thing?

It isn't such a hard fix. Therer is only one reason I can think of. If this "fix" wan't made it would cause such a massive uproar that pitchforks & torches would come out.

I know if WE got caught in it (very high cost area) it would cost us a couple thousand dollars.. . all of a sudden... due to the IRS (not the easiest receiver of funds to work with). .

[moose65]

2. Doesn't make sense to me, either

Seems like it would be easy to index it when they're doing one of these temporary "fixes." Maybe they WANT it to hang around so they can use it for an election issue? Am I really that cynical?

[trogdor]

4. No.

As the Blue Dogs point out, that would require a tweaking of the tax code that would result in tax increases for some taxpayers, particularly those in the higher income range. Republicans would never let that happen as long as they can peel off enough Democratic votes to prevent it. I think you'd need a majority of at least 15% in both houses of Congress to get any meaningful tax reform done that would require such tax increases. That would be +62 in the House and +8 in the Senate. We haven't seen either party get that since the Carter administration.

[joeglow3]

6. Speaking as a tax CPA

You NAILED it. The tax was orginally implemented for something like 35 taxpayers. There are 2 reasons (both political) why this won't be indexed:

1. Each party wants to claim a victory for the middle class every year. If you index it, they can't tout what they do for the middle class on an annual basis.
2. Indexing it would "cost" the government tens of billions of dollars over a 10 year period. It is easier for the public to stomach the "cost" when you just look at it from an annual cost.

[underpants]

3. Good I hope they get some credit for this

Not a final solution but they did do something about it.

[slackmaster]

7. It's broken in many more ways than lack of indexing for inflation

In 2001 I exercised 400 shares of stock options that were about to expire and become worthless.

The rules of the option exercise prohibited me from selling the stock for six months (as a way of guaranteeing against blatant manipulation).

On the day I exercised the options, the stock closed at $11.50. Six months later, it was trading at $.25.

Guess which of those two values gets used to calculate your AMT liability?

You get two guesses and the first one doesn't count.

My tax accountant saved me by helping me think through some obscure deductions. I came very close to owing about $1600 in AMT, for a vanished paper profit that I never had an opportunity to turn into real profit.

[fascisthunter]

5. Tax the Middle Class, Yet Give Tax Breaks to the Top 1%

My wish is that the next Democratic President pulls an FDR. And no more compromising.

The idea that this was even attempted is infuriating.