Congressional Inaction Means Big Tax Hit

Press Release

CONGRESSIONAL INACTION MEANS BIG TAX HIT

ON MIDDLE CLASS IOWANS' BANK ACCOUNTS

Tax time is still months away, but Congressional inaction on an important tax issue will be very costly to hundreds of thousands of middle class Iowa families.

The Alternative Minimum Tax, or AMT, was added to the American tax code by Congress 38 years ago. It was designed to ensure that the wealthy can't use loopholes to avoid paying taxes. At the time the AMT targeted only 155 Americans — 20 who were millionaires — who paid zero federal income taxes, thanks to tax deductions and credits.

The AMT is calculated after taxpayers complete their regular income tax returns. After both figures are calculated, the taxpayer is required to pay the higher amount. The AMT does not allow for deductions like child tax credits as more and more Americans are being forced into paying the AMT.

What began in 1969 as a tax on the very wealthy is now hitting more and more middle class families because the tax was never set to adjust with inflation. In fact, it is expected that the AMT will affect 25 million Americans hitting some people who make as little as $50,000 a year.

Two years ago, 22,000 Iowans were required to pay the AMT. However, if the leadership in Congress does not act to change their misguided tax plan, the number of Iowans hit by the average $2,000 AMT tax hike on their 2007 returns jumps to almost 200,000.

The worst part is that hundreds of thousands of Iowans won't realize that they will be affected by the AMT until they have completed their income tax returns, receiving an unpleasant surprise as the IRS snatches thousands more in taxes from their family budgets.

Since 2001, Congress has periodically updated the tax code to avoid having the AMT hit middle class taxpayers. If Democrat leaders in Congress do not get a tax code fix to the President's desk in the next few weeks, millions of middle class taxpayers will be left to personally pay for the inaction of Congressional leaders.

Additional problems are created if no fix is signed into law by November 16th. Because the AMT affects a dozen tax forms, any change in tax law means that the IRS will have to update online and printed forms to reflect that change. However, because it takes weeks for the IRS to make the updates, it could create a tax return season of massive delays and confusion for both the IRS and American taxpayers.

As one expert recently pointed out, even if there's no possibility that you will owe the AMT, you could be affected by this issue as refund checks are likely to be delayed up to several months. That means that the hundreds of thousands of Iowans who are counting on their refund checks to pay household bills, pay down credit cards balances or pay for a family vacation may have to wait because of Congressional Democrats' inaction on this issue.

This is an issue where partisan bickering will cause real financial consequences for hard-working taxpayers in Iowa. Congressional leaders have been delinquent in protecting middle class taxpayers on this issue. It is wrong, and they must act immediately to avoid this impending AMT catastrophe.

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