Albert Einstein once remarked that, "the hardest thing to understand in the world is the income tax." And that was before Congress invented the Alternative Minimum Tax or AMT. The AMT was designed because the government thought some people were not paying enough in taxes.
One of the issues that has been lost in the debate about the fiscal cliff is the change to who has to pay the AMT. Every year Congress has to go in and fix the alternative minimum tax so that it does not hit middle class families because of inflation.
Last year about five million people paid the AMT. However if no patch is passed, next year 33 million middle class taxpayers could end up paying the AMT. Individuals making as little as $33,750 or couples making $45,000 could see their tax bill rise by as much as $2,250 this year. People who paid the AMT last year, would owe an average of $5,500 more in taxes.
I think we ought to get rid of the alternative minimum tax; however that would require a full rewrite of the tax code. I hope we do that next year, but in the mean time we need to fix the AMT for 2013. Without Congressional action, many families will find out that Washington considers them to be rich.
Congress needs to fix this middle class tax hike as a part of any fiscal cliff deal. Increasing taxes in a fragile economy on anyone is the wrong thing to do.