- The Washington Times - Monday, January 2, 2006

Hill inaction

on levy could

cost thousands

As many as 17 million Americans begin the new year facing the possibility of sharply higher federal income taxes in 2006.

Because Congress has not yet intervened, the number of taxpayers affected by the Alternative Minimum Tax (AMT) could soar to 20 million or more. Many of the new victims could see their federal tax burdens grow by several thousand dollars.

Congressional leaders say that will never happen, pledging that the House and Senate will pass remedial legislation early next year limiting the growth of this surtax to a much smaller number. But there’s no assurance this will occur, in part because some in Congress have other priorities, such as pushing tax preferences for capital gains and dividends.

As a result, there’s at least a chance that millions of Americans are in for a rude awakening on the tax front, and that some of them won’t find out about it until they file their returns in 2007.

Maggie Doedtman, a tax-preparation specialist for H&R; Block in Kansas City, Mo., said the AMT constitutes a major surprise for a growing number of taxpayers.

“People think of this as something that should just not happen to them,” said Miss Doedtman. “Even if Congress does another short-term patch, the number of people affected by this will continue to grow.”

Becoming subject to the AMT can be downright disagreeable. The average tax per AMT payer was about $4,000 last year, and it’s not unusual for first-time payers to take a four-figure hit.

The fact that nearly 4 million taxpayers are expected to find themselves subject to the AMT for 2005 is a far cry from what creators of the tax intended a quarter-century ago. The parallel tax system was aimed at a few hundred Americans who were using multiple tax write-offs to avoid paying any federal income tax.

The AMT addressed the problem by eliminating major categories of tax deductions such as state and local taxes, health costs and personal exemptions, then recalculating tax liability under a different formula. In the early years, only a few Americans saw their tax bill go up as a result of the AMT.

But, unlike the main tax system, the AMT was never indexed for inflation. As a result, its reach has gradually grown, and would have expanded even faster but for temporary fixes by Congress in recent years. Now, with Congress failing to act on a patch covering the 2006 tax year, millions enter the new year unable to predict their federal liability.

According to the Congressional Budget Office (CBO), the AMT hits hardest on those with adjusted gross income of $100,000 to $500,000. Already, well more than half the families and individuals earning $200,000 to $500,000 are taxed under AMT, the CBO said.

c Distributed by Scripps Howard News Service.

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