Maylyn Cleveland and Amy Maifield with Liberty Income Tax Service, dance on a corner in Anchorage, Alaska, while urging people to get their taxes done and offering free hot dogs, April 14, 2005. (AP Photo/Al Grillo)
About 35 years ago, the Treasury Department reported to Congress that 155 people with high incomes had not paid any income tax. Congress acted, imposing a tax to make sure rich folks don't use loopholes and shelters to escape paying. It is called the Alternative Minimum Tax, and all these years later it has become a kind of parallel income tax. Taxpayers with certain incomes are forced to figure the tax they would owe under the regular income tax, then figure the tax they would owe under the alternative minimum tax, and then pay the larger of the two. More and more people are having to do this, because -- unlike the rest of the tax code -- the threshold for the alternative minimum tax is not adjusted for inflation. Here's the result:
When the alternative minimum tax started in 1970, 20,000 people paid it.
This year, about 3.1 million people will pay it.
By 2006, unless something is done, more than 20 million people will pay it.
These are not the super rich tax-avoiders at whom the tax was aimed. These are mostly Americans with incomes between $100,000 and $500,000 a year.
Joining the panel to discuss this and other tax issues is Stephen Moore, an economist who specializes in taxation and budget matters. Moore is President of the Free Enterprise Fund and a regular contributor to THE WALL STREET JOURNAL editorial pages.
"The Alternative Minimum Tax is also something of a stealth tax, isn't it? Because you assume when you pay your income tax that all the normal legal deductions that you get, whether for having children or state and local taxes, will apply to you. But if you are forced into the Alternative Minimum Tax, a lot of those deductions go away."
"What makes people really angry about the Alternative Minimum Tax is you fill out your regular 1040 forms and then when you're done with that you have to fill out the Alternative Minimum Tax. It should actually be called the Maximum Tax, not the Minimum Tax, because the truth is you have to pay the greater, not the lesser, of the two."
"This is not like the Capital Gains Tax or the Estate Tax, where it's a problem and you go over in a corner and you work on it and hope something comes of it. The way this tax is progressing in about five or 10 years it will be the tax system, and the argument is that you won't be able to get rid of it because it is the way the government produces revenue for itself."
"I think by '09 it will hit a little more than 30 million people. There are some cynical economists out there who say, 'Just let this thing continue to grow. Perhaps it will replace the regular tax code and that won't be such a bad thing if we get a sort of back door to a fairer, flatter tax system.'"