NYT,pg1: Case of Vanishing Deductions: Alternative Tax Called Culprit

[DeepModem Mom]

Case of Vanishing Deductions: Alternative Tax Called Culprit
By DAVID LEONHARDT

Published: February 21, 2005


The valuable federal tax deductions that people receive for paying local and state taxes have quietly started to vanish for many households, raising the cost of living in places like New York, Massachusetts and California, already among the nation's most expensive.

The culprit is a once-obscure federal tax provision known as the alternative minimum tax, which was created in 1969 to ensure that a relatively small number of wealthy people did not use loopholes to avoid paying taxes.

But it is increasingly being applied to families with incomes of $75,000 to $250,000 a year who claim relatively high deductions - like the ones for property taxes, state and local income taxes - and the exemption for children. When it does apply, it cancels some of those deductions.

The impact is about to mushroom. Barring a change in the law, almost 19 million taxpayers will be subject next year to the alternative minimum tax, or A.M.T., up from roughly 3.4 million this year and 1.3 million in 2000, according to the Tax Policy Center, a Washington research group whose calculations on this issue are widely accepted....

***

About half the people paying the alternative minimum tax in recent years live in one of four states - California, Massachusetts, New Jersey and New York - accounting for almost a quarter of the nation's population....


http://www.nytimes.com/2005/02/21/business/21tax.html?pagewanted=all&position=

[slackmaster]

1. I almost got dinged with it after exercising some stock options

I didn't know about the rules for stock valuation WRT the AMT.

I exercised some options for the company I worked for, on the day it went public. A clause in the option agreement prohibited me from selling any shares of that stock for six months. The price went down steadily, and by the time six months rolled around the shares had dropped by about $11 from their offering price.

Even though I had no opportunity to sell the shares at their high point, for AMT liability their value was assessed at the issue price.

My tax accountant told me that if my adjusted gross income had been $16 higher that year than it turned out to be, I would have been liable for AMT and it would have increased my tax by over $3,000.

The AMT was a good idea with a noble purpose, but it should have been indexed for inflation.

[lasttrip]

9. read them carefully. holding periods before you sell could hurt you. nt

[Mandate My Ass]

2. Blue states

bend over.

[sadiesworld]

3. Yep. And many dems support the REPUBLICAN idea

of raising the cap on the payroll tax (let's hit big city upper-middle earners with a double whammy!). If this plan works, we can kiss some big city dems good-bye b/c the corporate media will portray * as compromising with the evil tax-raising dems *sniff*.

[Skink]

4. Raising the cap is only fair.

[sadiesworld]

5. Raising the cap is decidedly unfair.

For over 20 years, the tax rates for the super wealthy have been kept artificially low by the improper use of the trust fund. It is time for the uber rich to pay the piper and dems should stand as one and demand that the tax cuts for the wealthy not be made permanent. Why should those making between $90K and $140K make up for the fact that when Bill Gates croaks, his estate won't pay a red cent in inheritance taxes?

[On the Road]

6. The Uber-Rich are Not the Ones Being Affected

It USED to be only the rich. Now it's two-income middle-class couples.

Tax rates ought to be higher for the upper brackets. But the AMT is not serving its original purpose any longer.

[sadiesworld]

8. My post was somewhat unclear.

My point was that the AMT, in conjunction with raising the payroll tax, is a (bad) double whammy to mid-upper wage earners.

I think we should be going after the truly wealthy.

[On the Road]

10. I Would Agree with That

[Trillo]

14. I only partly agree.

Mid to upper wage earners are themselves "taking advantage" of a skewed wage curve, that fails to grant fair compensation to those at the lower end, based upon relative time spent in a classroom seat--a form of payment everyone experiences, but only a few can capitalize on later in life.

The UberRich are definitely a huge problem, that if not reigned in, will lead our civilization to financial exhaustion.

The AMT was nothing more than a band-aid fix to a real economic problem, a band-aid that is now saturated with pus and needs to be replaced with something fairer to everyone.

[Skink]

7. People making 90 a year are rich...

I'm holding steady at 16 to 17 a year. I'm not complaining. I have a job but asking those that are making 5 times a year what I make to pay more is reasonable. How about lowering the payroll tax rate but removing the entire cap? Or suspending payroll taxes for those making under 20,000.

[sadiesworld]

11. $90K a year is not rich, particularly if you live in an area where

apartments rent for a couple thou per month.

I see more "fairness" in eliminating the cap entirely and not requiring low wage earners to pay in, but I still see problems. Currently, SS is NOT an entitlement program but if benefits were not pegged to contributions, it would become one. I think it would be easier for the right to destroy (just think about the rabid republican who is paying in "for" someone else who never paid?!)

The reality is that we don't have a SS crisis. SS is owed a debt that is no different than that owed individual treasury bond holders. We have a debt problem and the * tax cuts (at least those that benefit the super rich) should not be made permanent.

[Skink]

12. Agreed..

I'd like to point something out, 20 or even 30 years ago low wage earners were making about the same but paying much less to live, from rent to bus passes. Do you realize it costs over a hundred a month to ride the Bart in San Francisco now.

[annabanana]

15. where are you?

and how many people are you supporting?

[Skink]

16. Is this the AnnaBananna from the Dean Forum?

I was Spencer back then. And thank god I'm not trying to support anybody besides Moi on 16 a year.

[bleedingheart]

13. I would like to see the cap eliminated but ...

I would also like to see the first $15,000 of income taxed only on the employer's side and not the employee...since people who are making those wages or lower need more help than a ballplayer who makes that in just a few minutes of playing....