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Sun Dec 23, 2012, 06:17 PM

the AMT is not a middle class tax

from Citizens for Tax Justice

http://www.ctj.org/taxjusticedigest/archive/2012/11/despite_what_youve_heard_the_a.php

"If Congress departs from its annual tradition of steeply reducing the Alternative Minimum Tax (AMT), 57 percent of the tax will be paid by the richest five percent of Americans and 91 percent of the tax will be paid by the richest fifth of Americans. If Congress does reduce the AMT as usual, almost all of the tax will be paid by the richest five percent of Americans.

The AMT is one of the factors contributing to the hysteria in Washington about the so-called “fiscal cliff,” the point at which several tax cuts expire and several spending cuts go into effect at the end of this year. Lawmakers and observers often mistakenly portray the AMT as a tax that will affect middle-income Americans if it is not controlled."

From 2009, the top 20% got a whopping 92.6% of the benefits from the AMT patch. The top 5% got 43% of the benefits.

http://www.ctj.org/pdf/amtpatchisnotstimulus.pdf

Yet the M$M spreads the message that "we need to patch the AMT to help the MIDDLE CLASS"

I don't think the top 20% is part of the "middle" and the top 5% certainly is not.

21 replies, 1990 views

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Arrow 21 replies Author Time Post
Reply the AMT is not a middle class tax (Original post)
hfojvt Dec 2012 OP
dawg Dec 2012 #1
ProSense Dec 2012 #2
hfojvt Dec 2012 #4
ProSense Dec 2012 #18
hfojvt Dec 2012 #21
HiPointDem Dec 2012 #20
jody Dec 2012 #3
hfojvt Dec 2012 #5
jody Dec 2012 #6
slackmaster Dec 2012 #7
hfojvt Dec 2012 #8
slackmaster Dec 2012 #9
hfojvt Dec 2012 #12
slackmaster Dec 2012 #13
hfojvt Dec 2012 #15
slackmaster Dec 2012 #16
hfojvt Dec 2012 #17
FreeJoe Dec 2012 #10
hfojvt Dec 2012 #11
slackmaster Dec 2012 #14
TheKentuckian Dec 2012 #19

Response to hfojvt (Original post)

Sun Dec 23, 2012, 06:21 PM

1. It's middle class only in the UK sense of the term.

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Response to hfojvt (Original post)

Sun Dec 23, 2012, 06:26 PM

2. Wait,

"From 2009, the top 20% got a whopping 92.6% of the benefits from the AMT patch."

...you're campaigning against people who make $50,500 to $84,000?

Maybe you should focus on income inequality and lose this absurd focus. Someone making $50,000 isn't rich.

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Response to ProSense (Reply #2)

Sun Dec 23, 2012, 06:38 PM

4. no the top 20% makes from $84,000 to $169,000

the top 5% makes more than $169,000.

Income inequality, to me, is the inequality between the top 20% and the bottom 20%. To somebody in the bottom 40%, who makes less than $31,000 - $160,000 certainly IS rich.

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Response to hfojvt (Reply #4)

Mon Dec 24, 2012, 03:44 PM

18. OK, you're attacking someone making $84,000?

With the focus on people making over $250,000, you want to redefine rich as $84,000?

Ludicrous.



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Response to ProSense (Reply #18)

Mon Dec 24, 2012, 04:36 PM

21. define "attack"

What it means is that I do not freak out if somebody making $85,000 faces a $20 tax increase (but still gets a tax cut on their first $84,000 of income.)

Nor do I freak out if somebody making $90,000 a year faces a $120 tax increase (but still gets a tax cut on their first $84,000 in income).

Nor do I freak out if somebody making $100,000 a year faces a tax increase of $320 (but still gets a tax cut on their first $84,000 in income)

Nor do I freak out if somebody making $150,000 a year faces a tax increase of $1,320 (but still gets a tax cut on their first $84,000 a year.

Putting the focus on people who make $250,000 a year does two things, as I see it.

1. It gives tax cuts to people making $200,000 a year.
a. to the vast, vast majority of the country, somebody making $200,000 a year IS rich.

2. it gives much larger tax cuts to those making MORE than $250,000 a year.

Moving the limit from $84,000 to $250,000 gives

1. another tax cut of $120 to somebody making $90,000 a year
2. another tax cut of $320 to somebody making $100,000 a year
3. another tax cut of $1,320 to somebody making $150,000 a year
4. another tax cut of $3,320 to somebody making MORE than $250,000 a year.

The higher threshhold gives more benefits the higher you go up the income ladder.

The proposed threshhold of $400,000 gives another $3,000 in tax cuts to people making over $250,000.

Other proposals, such as treating dividends like capital gains instead of as ordinary income, which they were pre-Bush. That measure also gives huge benefits to the richest 1% and the richest 5%.

Pushing the definition of "rich" ever upwards works as a way to give more benefits to the rich while the politician pretends he is giving benefits to the middle class.

Take the accursed payroll tax cut (please). It is $112 billion in supposed "middle class" tax relief. Yet $52 billion of those dollars go to the richest 20% and only $4.3 billion goes to the poorest 20%. That was a replacement for the Making Work Pay credit which gave $7.3 billion to the poorest 20% and only $13,3 billion to the top 20%, and only $0.8 billion to the top 5%.

The top 5% gets $15.8 billion from the accursed payroll tax cut.
The bottom 20% gets $4.3 billion.

Middle class tax relief helps the top 5% much much more than the bottom 20%.

But why should I concern myself about that?

It's ludicrous to care about the bottom 20% and to atTAX the top 20%.

As a liberal I guess my heart should bleed for somebody making $108,000 a year.

Then I would be a good Democrat. A strong supporter of Obama.

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Response to ProSense (Reply #2)

Mon Dec 24, 2012, 04:12 PM

20. median household income is about $50K. not the top 20%.

 

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Response to hfojvt (Original post)

Sun Dec 23, 2012, 06:30 PM

3. Regardless of how it's packaged, if govt takes my money IT'S A TAX. If people agreed, more would

 

demand accounting from government for how it spends "sale tax", "gasoline tax" etc which it uses in corruptible ways that too often end up in the pockets of our elected reprehensibles.

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Response to jody (Reply #3)

Sun Dec 23, 2012, 06:40 PM

5. oh, it is certainly a tax

it is just not a tax that hits the middle class. The benefits of the patch goto the top 20% and not to the middle 60%.

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Response to hfojvt (Reply #5)

Sun Dec 23, 2012, 07:07 PM

6. Agree, just consider the DOD budget that protects the worldwide assets of corporatists who

 

also benefit from DOS protected their investments, and DOC that pushes policies for multinational corporations based in the US.

It's ironic and sad that die-hard Democrats as we DUers can become so polarized and filled with hate that we are incapable of intelligent, objective debate over solutions to prevent another Sandy Hook Tragedy.

That and a few more divisive, polarizing political issues and Abraham Lincoln's dream of a people's government will indeed have perished to be replaced by a corporate state.



We Democrats should join Pogo who lived in a swamp I roamed and love:

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Response to hfojvt (Original post)

Sun Dec 23, 2012, 07:18 PM

7. For more than 40 years, Congress has avoided automatically indexing the AMT to inflation

 

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Response to slackmaster (Reply #7)

Sun Dec 23, 2012, 09:44 PM

8. and that's a big deal, why?

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Response to hfojvt (Reply #8)

Mon Dec 24, 2012, 09:45 AM

9. It was meant as an equalizer, to do something about the ultra-wealthy not paying a fair share of tax

 

When it was enacted in the late 1960s, it affected only about 15 or 20 families.

Do you not see something inherently wrong with allowing inflation to increment "excessive wealth" down through neglect, to the point where it affects the middle class?

Have you ever been faced with the possibility of paying AMT yourself? I have.

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Response to slackmaster (Reply #9)

Mon Dec 24, 2012, 02:05 PM

12. in the late 1960s the top tax rate was 70%

everybody was paying a higher tax rate then.

If almost everybody is gonna pay lower rates, which we all naturally want to, then somebody is gonna have to pay higher rates.

So far, it is not affecting the "middle class". It is only affecting the top part of the middle class. Part of the reason for that is the lack of indexing, but another part is the constant drum of tax cut, tax cut, tax cut. A drum that Clinton and Obama like to beat as well. Average rates for everybody have gone down over the last 25 years, making more people "eligible" for the AMT. http://journals.democraticunderground.com/hfojvt/169

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Response to hfojvt (Reply #12)

Mon Dec 24, 2012, 02:18 PM

13. Sure, that's a great "gee whiz" number but almost nobody paid that top marginal rate.

 

The median income in 1969 was $8,486. The highest marginal rate paid on the last dollars in that amount (from $8,000 - $10,000) for that year was 31%. The 70% marginal rate kicked in for income in excess of $200,000, which meant something completely different than $200,000 does today.

http://www.census.gov/hhes/www/income/data/historical/state/state1.html

http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2011-nominal-and-inflation-adjusted-brackets

Citing the top marginal rate that was in effect at some point in history is meaningless unless you put income levels in their proper historical context. If you want to say the tax burden was harder on the middle class in 1969 than it is today, you would probably be correct.

If the AMT thresholds are not adjusted for inflation, eventually they will hit the middle class and hit it hard. The system that has been in place since inception of the AMT is for Congress to take it up every 1 - 3 years and put a Band-Aid on the problem.

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Response to slackmaster (Reply #13)

Mon Dec 24, 2012, 02:38 PM

15. uhm, you kind of prove my point

the median income was paying a marginal rate of 31%? Today they are paying a marginal rate of 15%.

Yeah, the Band Aid ends up helping those in the top 20%.

Which is the only part of the middle class that Congress really cares about.

If it even can be called "middle".

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Response to hfojvt (Reply #15)

Mon Dec 24, 2012, 03:11 PM

16. You keep ignoring the fact that the Band-Aid has to be done every year or so in order to prevent...

 

...the middle class from getting clobbered by AMT once inflation proceeds far enough. A permanent fix would not be difficult to implement.

I absolutely agree that the middle class had it worse in the late 1960s than it does now, and that the upper class is better off. There's no doubt about either of those facts.

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Response to slackmaster (Reply #16)

Mon Dec 24, 2012, 03:36 PM

17. except a number of patches have been done for years now

and the middle class STILL would not get clobbered if the AMT patch was not done this very year.

So who has benefitted from all these patches?

It has not been the middle class.

Once again, the middle class is just used as the whipping boy to provide tax breaks to richer people.

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Response to hfojvt (Original post)

Mon Dec 24, 2012, 10:35 AM

10. i pay it every year and i don't think of myself as rich

I'm certainly doing well financially and am solidly upper middle class, but rich? No. I still have to go to work, save money, and watch the cost of things.

The bigger issue here is that the AMT will basically start replacing the normal tax code over time if it isn't reformed. It will go from hitting virtually no one making under 100k to hitting 45% of those making between 75k and 100k and 14% of those making between 50k and 100k. Because of the way it works, it will it harder on people with John state taxes and people with children. It will also hit more and more people every year.

I am OK paying it. I can afford it. I hate the extra complexity, uncertainty, and planning it and the annual tweaking causes. I would much prefer to see us move to a simple, stable, progressive tax system with minimal deductions and loopholes. Maybe letting the AMT take over through inflation is the way to accomplish that.

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Response to FreeJoe (Reply #10)

Mon Dec 24, 2012, 11:02 AM

11. sounds to me like you are rich, but don't think of yourself as rich

That's probably normal. Short people think of other people as being tall more than they think of themself as short. Tall people see other people as short more than they think of themself as tall.

That's less true though, because there is no stigma attached to being tall the way there is, somewhat, to being rich. Plus, the spread is not as large. A guy who is 6'5" is closer in height to the tallest person in the world than a guy who makes $650,000 a year is to the richest person in the world. $650,000 a year is crazy rich, but some other people make $100,000,000 a year.

IF the Bush tax cuts are allowed to expire, it will suddenly hit many fewer people.

And reform sounds like a long-term problem. Whereas some people are pushing the idea that "we need a deal on the fiscal cliff so the AMT does not devastate the middle class".

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Response to hfojvt (Reply #11)

Mon Dec 24, 2012, 02:34 PM

14. Let me give you an example of how AMT can harm a middle class person even with indexing for...

 

...inflation. This is what happened to me:

The company I was working for in the late 1980s went public in 1990. I had some stock options that I had to exercise, or they would expire and become worthless.

Most indications pointed to the company being successful. I exercised my options by paying about $2,000 out of pocket. (I had already paid income tax on that money.)

The day the stock went public, its price soared to the point where my shares were worth about $25,000 on paper. That seemed like a nice loyalty bonus for putting in eight years at low pay. But there was a catch: The option agreements required employees and former employees to hold their shares for 180 days before selling them. There was no option to sell early and pay a penalty - We just had to hold on to them.

Over the next six months, bad news about the company's financial situation bubbled up. By the time I was eligible to sell my shares, they were worth a grand total of $75. So I ditched them, which generated a capital loss of $1,925 which was useless to me because I had no capital gains against which to offset the loss.

I figured I had taken my lumps. I had made a bad decision by exercising the options, but had no way of knowing that until it was too late.

Then along came April the following year.

Guess which number the IRS rules defined as my gains and therefore tax liability with respect to owing AMT?

A. $75
B. $2,000
C. $25,000

You get three guesses, and the first two don't count.

I was potentially on the hook for AMT because of a large paper gain from one moment in time - A paper gain that I never even had a chance to realize.

Fortunately my tax accountant and I were able to come up with some "allowable" deductions that were unusual but defensible. My AGI was reduced to a point about $16 below which AMT would have kicked in, and cost me several thousand.

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Response to slackmaster (Reply #14)

Mon Dec 24, 2012, 04:09 PM

19. Granting that, the big picture facts are unchanged. Your situation is an outlier, even for you

What happened there is a one off, not something that has to be wrestled with every year. There is no way this is a substantial issue for like 95% of the country in any given year and pretending so mostly serves as a protection mechanism for the 5% to the detriment of the 95% and the benefit to 80% is strictly random and highly isolated events like your example.

We can't triage and set policy based on one off outliers in favor of what is happening 90% or more of the time. We are a nation of hundreds of millions, the odds of avoiding one off situations in governing are astronomical at best and exactly why accounting for known factors is crucial and empowering people to identify and deal appropriately with exceptions is a requirement for any system to work in a just fashion.

Your problem was far more rigid stupidity built into the system than the broader rule, in my eye.

Of course you understand why we must have these games instead of indexing and being done with it is because everything else would use that as precedent from minimum wage to salaries to Social Security payouts and "stakeholders" wouldn't be able to hoard all the proceeds of our productivity, not very easily in the framework of the worldview created by such an environment.

There is always a deep unwillingness to tie anything to conditions. Why the hell would we be debating unemployment extensions at all while conditions are worse or even the same as when the stabilizer was passed?
How do we get into discussions about cutting food stamps when both costs and need have increased?

I doubt we'd be cutting military spending when the enemy was landing ships on our shores, in fact no one would be calling for such a thing because to do so would be absurd. All the sudden the concept that resource must balance with need makes a hell of a lot more sense. The foolish school of thought that doesn't believe in demand as primary driver causes this a lot of this. They create a mental model that says supply will create demand that otherwise would not exist. The model cannot be escaped. Feeding the hungry can only result in more hungry wanting to be fed, the fuckers would have found a way to eat if they didn't think they could be fed.

Now, the logic becomes solutions can only create problems which too often even moderates to a fear of such at near or at par with the desire for a solution. Mix in some anecdotes and we can't do anything but stick with the privileged position of the status quo

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