Alternative Tax Seen as Threat

Alternative tax seen as threat

Most Americans might have known about the threat of the massive space station falling to earth in 1979 or the much-feared crash of the world's electronic and computer devices in the year 2000, but few of the 23 million Americans affected by the AMT, alternative minimum tax, know of the financial threat hanging over them.

It is such a big threat - potentially forcing middle-class families to pay thousands of extra dollars in federal income taxes - that U.S. Rep. Richard E. Neal, D-Springfield, has set fixing the AMT as his first task as chairman of the House Ways and Means Committee panel that handles federal tax questions.

For Chicopee resident Maggie L. Rauh and her husband, the AMT isn't a potential nightmare, it's a current one. Rauh said her family will have to pay $1,400 more in taxes this year if the tax code's AMT provisions aren't repaired by Congress.

"That's our vacation money," said Rauh, whose family income is $75,000 and her taxes would be $7,500 if the AMT isn't fixed. "We pay a few bills with the (federal) refund and the rest is vacation money."

Rauh, the mother of three, is an accountant with the Springfield firm Moriarty & Primack, located in Monarch Place. It was the late Rick Moriarty, the firm's founder, who informed Neal about the looming AMT problem years back.

Enacted in 1969, the Alternative Minimum Tax affected just 200 wealthy taxpayers. It was created to ensure the nation's richest earners paid income taxes to the federal government because some had managed to avoid those taxes through loopholes and deductions.

Today, the AMT touches 4 million taxpayers nationally and it could reach 23 million more households if Congress doesn't pass a bill this spring to temporarily exempt many of the 23 million. The GOP-controlled Congress passed a stopgap measure last year that cost the U.S. Treasury $60 billion.

Neal called AMT reform one of his top legislative priorities and said he is "determined to find a solution to this growing problem."

"The National Taxpayer Advocate has identified the AMT as one of the most serious problems facing taxpayers today. More than 23 million Americans will be caught in this stealth tax, many of them middle class, if Congress fails to act on this important issue this year," Neal said.

Recently, Neal questioned Rob Portman, the director of the Office of Budget and Management, about why there has been no urgency shown by the administration to permanently fix the AMT problem.

"I asked him why is the word 'crisis' used to describe a program (Social Security) that can pay full benefits for the next 30 years but we don't use the word 'crisis' to speak about 23 million families that are going to get caught next year in the Alternative Minimum Tax," Neal said.

The AMT has made its way down to reaching households earning $61,000 (single or combined) because the tax was never adjusted for inflation and the 2001 tax cuts of the Bush Administration cut so deeply "the regular income tax" that thousands more taxpayers were kicked into paying the alternative tax.

Rauh is savvy and can see the writing on the wall. By law, taxpayers have to pay the higher of the two taxes, either the regular income tax or the Alternative Minimum Tax. For her, that means a bigger tax bill this April 15.

But what if you don't know about the AMT?

"The IRS will calculate it and send them a bill," Rauh speculated.

The issue is a main concern with Democrats, embraced by Speaker of the House Nancy Pelosi, D-Calif., Majority Leader Steny Hoyer, D-Md., and Rahm Emanuel, D-Ill., a former adviser to President Clinton and now chair of the House Democratic Caucus.

As chairman of the House Ways and Means Committee, U.S. Rep. Charles Rangel, D-N.Y., named Neal to chair the Subcommittee on Select Revenue - a prominent committee because it is responsible for modifying the Internal Revenue Service's tax code.

"Richie has provided leadership on this issue when an unfair, unplanned tax falls on people the tax writers never intended it to fall on," Rangel said. "The only problem we have removing the 23 million people is it will cost a lot of money."

President Bush's 2001 tax cuts extend through 2011 and will represent a total revenue loss of $1.3 trillion. If the AMT is repealed altogether this year, it would mean an additional $600 billion revenue loss over 10 years.

Emanuel, who serves on the Select Revenue Committee with Neal, is considered by his party members as the architect to their success at the polls and winning control of the House. He says Neal is in a good position to make sure the voters' voices on this important issue are heard.

"This is a guy who gets policy and gets politics and very rarely do you get a member who gets both and Richie excels at both," Emanuel said. "We are going to tackle the AMT riddle, and I can't think of a better person than Richie Neal (to do it). He has a deft hand at policy and a surgical hand at politics."

http://www.house.gov/neal/news/news84.html