Debt Free

The year was 1969. There was Free Love, the Hait, cheap gas, cars with big V-8s, and a growing unrest in America. Lurking in the background was what became one of the most insidious pieces of legislation ever to be perpetrated upon the American people. The country was focused on the war in Vietnam, and apparently, the 155 Americans that made over $200,000 in 1966, but paid no income taxes. Dutifully, our Congress decided that the injustice must be fixed.

Ironically, this would cause normal Americans 40 years hence to be oppressed by a tax code that has been periodically altered, but never indexed for inflation. In case anybody has been asleep since the '60's (possible, given the predilection of some during that time for recreational pharmaceuticals), prices have actually increased. In addition to never being indexed, it has been changed from its original form to be far more broad. This had had the effect of catching millions of those never intended. If you think this can't happen to you, think again. According to the Congressional Joint Economic Committee Study of 2001, it is estimated that by 2010, a staggering 17 million individual income tax returns will trigger the AMT. Obviously, with a number that large, most of those taxpayers will be average citizens. Note that the massive number doesn't include the corporate AMT, it's only individual tax filers like you and (hopefully not) me.

If you are one of those unlucky citizens to be snared in this net, you can attest to the fact that the IRS will take everything. You say you didn't even make $300,000 last year, you only made $82,000? Too damn bad, because you owe $300,000 in AMT, and it's due RIGHT NOW! You better cash out your retirement savings(ironically, the tax consequences of that could cause you to owe far more), sell your house, and pull the kids out of college. That sort of nightmare has afflicted more Americans every year. To make matters far worse, most of those are just normal Americans with middle class incomes; like you.

According to their 1967 federal income tax returns, 15,667 Americans raked in over $200,000. That was a pretty large chunk of change in 1967. The one percent of those people that avoided any tax liability that year really f***ed with the wrong marine. Americans that had actually paid their fair share of taxes were pretty pissed off after this little injustice came to light during congressional testimony. Congressional members, wanting to quiet their constituency, and bring in some extra tax revenues at the same time, decided to take action. Notice they didn't cut everyone else's taxes to make up for the amount gained by the AMT, they just added the extra money to the Federal budget.

One of the largest problems with the AMT, outside of the fact that affects so many Americans it was never intended to, is that it's extremely complicated. Even many financial planners don't have a great idea as to how different events can trigger AMT provisions. To make matters worse one small misstep can trigger a series of events that can culminate in you losing everything to the IRS and still owing them more money than your total income over the previous five years. It's an egregious erosion of the average American's civil rights. The complexity leads to a very high cost of compliance for the taxpayer as well. Normally it costs about 2% of tax revenue generated to file federal income taxes. If the AMT is triggered, that number more than doubles.

As an additional slap in the face of the American taxpayer, after adjusting the original $200,000 income figure upwards for inflation, as the IRS has failed to do, there are actually more individuals above the threshold not paying any federal income tax than in 1969! What a crock. So, not only has the AMT completely failed in its original mission, it has imperiled millions of average Americans in the process. If you're not riled up yet, consider this. According to the aforementioned congressional study, only one extra tax payer was added to federal tax rolls for every 6,600 already paying taxes! Everyone else subject to the AMT was already paying taxes.

This whole mess could have been eliminated. The Taxpayer Refund and Relief Act of 1999 (106th Congress, H.R. 2488) actually phased out the AMT beginning in 1997 and ending in 1999. It was passed by both the House and Senate but vetoed by President Clinton as a “risky tax cut” that would actually increase taxes for many Americans. Way to go, Bill! I wonder how those 17 million taxpayers who will be subject to the AMT in 2010 feel about that? I'm willing to bet most of those would long for that “risky tax cut”. Write you congressional representative and Senator today and urge them to repeal this heinous piece of legislation before it's too late!