A nasty surprise awaits the middle class come tax day

SCRIPPS HOWARD NEWS SERVICE
Seattle Post-Intelligencer

1/31/04

Beware: The alternative minimum tax could soon snag you.

The minimum tax, enacted to make sure that even the ultra-rich pay some income taxes, may hit 44 million households, including families making less than $50,000 a year simply because they have lots of children to claim as exemptions or take other tax breaks.

The non-partisan, private Tax Policy Center estimates the tax will:

Add an average of $3,751 annually to a tax bill, with 52 percent of affected households making $100,000 or less a year.

Let many ultra-wealthy people off the hook again: Only 24.3 percent of people making over $1 million will pay the tax by 2010.

Congress enacted the tax in 1969 amid reports that 155 ultra-rich Americans avoided paying a penny in income tax. The alternative tax has been on the books since then, never indexed to inflation.

The tax breaks President Bush and Congress enacted since 2001 expanding child tax credits and "marriage penalty" relief make it more likely taxpayers will owe the alternative minimum tax.

Bush called for permanent extension of these tax breaks in his State of the Union address but not reform of the alternative minimum tax, which denies families most of the Bush write-offs. The 2003 tax cut contains a temporary provision that will help many families avoid the alternative minimum tax through 2004. But repealing the tax entirely would cost the Treasury $600 billion in the next 10 years.

And there's insult to the injury, the IRS says:

Taxpayers who might owe the alternate minimum will spend 12 hours more preparing their 2003 taxes. They will have to calculate taxes under two formulas requiring eight pages of instructions, a 12-line worksheet and a 65-line form.

And when they're done, they must pay the higher amount. Many won't owe the alternate minimum tax -- but they'll still have lost a day figuring that out.