As tedious or complicated as tax law may seem, our country must confront far-reaching decisions regarding the federal income tax. A lesser-known aspect of the tax code that needs repeal is the Alternative Minimum Tax (AMT). The AMT is additional tax assessed when the government determines, through a complicated formula, that you haven’t paid enough federal income tax. The AMT was formulated in 1969 to target 155 (yes, 155) wealthy individuals (those making over $200,000) who legally avoided paying any income tax. In today’s dollars, the equivalent would be $1.1 million, but the AMT has never been indexed for inflation. While the AMT accomplished its goal, it is now failing in its original intent and is subjecting middle-income families and individuals to unfair taxation. This hits home when Idaho ranks 28th highest in states affected by the AMT, but is 39th highest in population, which indicates that Idahoans are disproportionately affected by this “stealth” tax.

At a recent Senate Finance Committee hearing, witnesses from the United States Treasury, the Congressional Budget Office and taxpayer advocacy groups testified that the AMT unfairly burdens taxpayers and penalizes people who are married, have children and own property. An increasing number of these taxpayers are middle-income. I have co-sponsored legislation to repeal the individual AMT this year. Without action, middle-income taxpayers will foot the bill for an increasing percentage of federal expenditures, making this unfair tax even more difficult to repeal.

Some facts about the AMT and its effects over the next five years demonstrate the urgency of this problem. - The AMT requires filers to compute their taxes twice, once to determine standard tax liability and again (complete with a two-page form with eight pages of instructions) to determine AMT liability. - AMT has never been indexed for inflation. Under current law, 34 percent of individual filers will pay the AMT in 2010. Of these 30 million or so filers, more than half (53 percent) will have incomes of less than $100,000. - The average AMT taxpayers owed an additional $6,000 in taxes last year. - It doesn’t allow for personal (child) exemptions, state and local income tax deductions and places many taxpayers in a higher marginal tax bracket. - This year 3.8 million filers were subject to the AMT. Next year that jumps to 20.5 million, an increase of 540 percent. - Farmers and ranchers are disproportionately affected because many exclusions, credits, and deductions they can legally claim using the standard tax forms are disallowed under the AMT. - A single parent with three children making less than $100,000 was eligible to file a 1040EZ because he had no itemized deductions. The fact that he claimed his children as dependents required him to pay the AMT. - A married couple with four children and one in college both worked outside the home. They were required to pay AMT equal to their entire interest and dividend income for that year, in effect, invoking a 100 percent penalty for wisely investing their hard-earned money.

If we address this problem now, it will cost us much less than if we wait even a few years. Within ten years, the AMT will affect almost half of all individual filers. Repealing it then will eclipse the cost of repealing the regular income tax. This problem must be dealt with responsibly by looking at the potential for crisis in the near future. Immediate repeal, before we become further dependent upon the revenues gained through AMT, is the wisest course of action.

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