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Texans need Congress to fix alternative minimum tax flaws
by Senator Kay Bailey Hutchison
Published in the Austin American Statesman December 5, 2007
Albert Einstein once said, "The hardest thing in the world to understand is the income tax." Since Einstein's admission, our tax code has only grown more complicated and is poised to force 20 million middle-class Americans to pay an extra $65 billion in taxes over the next four years. And if the tax cuts of 2003 expire, a staggering 115 million taxpayers will be hit with a $1,700 tax increase. One of the most pressing domestic priorities facing this extended Congress is passing legislation to address the alternative minimum tax (AMT) that will slap millions of Americans — including 732,000 Texas families — with new taxes.
Though many Americans may not be focused on tax day just yet, the ears of most taxpayers perk up at the words "alternative" and "minimum" used along with "tax." By its name, many might assume the AMT is a good thing. A simpler "alternative" to the complicated and overly burdensome tax code would be welcome news. The idea of paying a lesser or "minimum" amount of taxes sounds good, too. But the AMT is not simpler and does not allow taxpayers to pay lower taxes.
Instead, the AMT denies taxpayers many important deductions; middle-class families subject to AMT actually pay higher taxes. To make matters worse, Congress failed to index the AMT for inflation. So a tax that affected fewer than 369,000 taxpayers in 1994 could affect another 20 million taxpayers in April.
If Congress does not amend the AMT, a Texas family earning an income of $75,000, and paying $6,000 for day care for their four children, would itemize their child care deductions and receive a $6,189 refund. Without this fix, however, the family would receive only a $700 refund. Even if the tax fix is enacted, congressional inaction to date could delay refunds until June — a delay that many working families cannot afford.
Unfortunately, even if Congress passes a bill, we can expect problems. Months ago, Treasury Secretary Henry Paulson warned that any bill to fix the AMT would need to be sent to President Bush by Nov. 16, allowing the Internal Revenue Service sufficient time to prepare and distribute instructions and update its computers to process tax returns in April. Many refunds may be delayed up to two to three months because the forms will not be ready in time for tax season. This will affect Texas families that take certain deductions and credits, including the child care credit, the adoption credit and the dependent care credit.
If Congress fails to act, the AMT impact will be significant. Without revision, the AMT will dig deep into the pockets of hundreds of thousands of families in Texas, who stand to lose $1,000, $2,000, $5,000 or more. Congress must correct the AMT, which threatens to encroach on the earnings of middle-class taxpayers.
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