Alternative Minimum Tax (AMT) / Hybrid Tax Credit Change

<div class='quotetop'>QUOTE(efusco @ May 16 2006, 07:30 PM) [snapback]256612[/snapback]</div>

Well, the same version passed both the house and senate, and President Never-Vetoed-A-Bill is probably going to sign it... So it's pretty safe to say you'll get the credit regardless of AMT owed.

 

<div class='quotetop'>QUOTE(viking31 @ May 16 2006, 01:49 PM) [snapback]256489[/snapback]</div>

As one of those affluent highly educated folks, I completely support taxing the rich.

Yeah, I have $100,000 in student loans. Nope, I can't afford to buy a house.

But I don't have to choose between taking my kid to the emergency room and paying the rent. I don't have to decide between groceries and medicine. A lot of my patients do.

I prefer a tax system that takes more from the rich. I'd rather the government take money that would have gone to a boat or vacation home or (*gasp*) new Prius, instead of people's grocery and rent money.

 

<div class='quotetop'>QUOTE(Kiloran @ May 16 2006, 10:18 AM) [snapback]256340[/snapback]</div>

I'm not a tax expert, but a few months back, I heard even one of my coworkers was hit by AMT. I don't think I'm anywhere near that since I have no house and not many deductions and wasn't hit for 05.

I think your view of "wealthy" is stilted by the very low housing costs in your part of the country compared to where I live. The housing prices in the SF Bay Area and southern California are insanely high. From http://www.realtor.org/Research.nsf/files/...LE/REL05Q3T.pdf (file seems gone now so I've attached it), the median price of a house from 3rd quarter of 05 in your area was $230.6K. For the San Francisco-Oakland-Fremont, CA area, it was $721.6K! From http://www.nationalcity.com/content/corpor...nal101305v2.pdf, for Philadelphia, the median price was for 2005 Q2 was $206K. For San Jose, CA, where I live, it was $638K.

Sure, we people here have to be paid more, but that that doesn't mean us people here in the Bay Area are rich. http://www.businessweek.com/bwdaily/dnflas..._7966_db035.htm is an article about where the "cheap" housing is and it's the article that had the link to the above PDFs.

I received a 15% geographic differential [increase] when I moved from the Seattle area to the SF Bay Area, but there was no state income tax in WA state, but there is in Cali and the housing prices here are higher. So, w/o changing any withholdings (although more went to more 401K and employee stock purchase plan), my NET pay was LOWER partly due to the state income tax. BTW, for the Seattle area, the median housing price was $325K.

BTW, here's an article about the AMT and how it's burning the middle class http://money.cnn.com/2005/11/09/pf/taxes/amt_101/index.htm and here are some current prices for the Bay Area: http://www.dqnews.com/ZIPSJMN.shtm.

One more thing, from http://www.dqnews.com/ZIPSJMN.shtm, the zip code 94303 includes East Palto Alto (not sure if all of East Palto Alto is included in that zip). In 1992, it was dubbed murder capital of the US. Although crime has supposedly gone down a lot there, it's still a bad area, but the median house price is $645K.

 

<div class='quotetop'>QUOTE(viking31 @ May 16 2006, 04:49 PM) [snapback]256489[/snapback]</div>

The AMT, by definition, affects the wealthiest segment of the population (and yes, there is a problem with it not being indexed to inflation and eating into the upper end of the middle class).
Therefore, allowing deductions into the AMT which were not allowed previously can only affect those who are affected by the AMT, who are the wealthiest segment of the population.
This cuts the tax burden for those affected by the AMT, the weathiest segment of the population.
Am I somehow mistaken?

 

<div class='quotetop'>QUOTE(efusco @ May 16 2006, 04:53 PM) [snapback]256490[/snapback]</div>

Evan, my comment was about changes to the AMT law which end up benefiting only the wealthiest segment of the population and you're asking me to redesign the entire tax system.
And, for the record, I'm not griping about the weathy, just tax cuts targeted toward their benefit at the cost of the rest of us. If the government gives a dollar to one group, it must be supplied by those not in that group.

I think small changes are necessary to the AMT law, indexing for inflation would be a good start.
The change to exclude non-refundable credits fundamentally undermines the AMT, in my opinion.

If you want repeal of the AMT or redesign of the entire tax structure, that's a whole other topic.

<div class='quotetop'>QUOTE(efusco @ May 16 2006, 10:30 PM) [snapback]256612[/snapback]</div>

Correction:
Under the current law you will get only that portion of the credit up to the difference between your regular tax and your AMT amount.
In other words, if your regular tax is greater than your AMT amount, you will get the credit or the difference between your regular tax and your AMT amount, whichever is less.

 

<div class='quotetop'>QUOTE(Kiloran @ May 17 2006, 08:29 AM) [snapback]256773[/snapback]</div>

No, you aren't mistaken, but you're assuming that the only tax cut in the bill affects the wealthy. Without addressing the AMT issue, any tax cut would ONLY effect the lower end of the income scale because AMT would wipe out the effect of any tax reduction in the standard rates. If you start with the premise that a tax cut is a good idea in the first place (which is the real issue, but in this political climate is a given), then the worst thing you could do is reduce the tax burden only for the lower earners. The reason for lowering taxes is so that taxpayers have more to spend, which hopefully will elevate the economy and ultimately increase tax revenue by increasing the tax base more than the tax cut. When you only reduce taxes at the lower end of the income scale, the expectation is they will take the extra money and spend it. There's nothing wrong with that, they should spend it. But when it is spent, it generates $1 of taxable income to someone else and the government gets, on average, about 25% of that. A net loss to the treasury. Sure, we're happier to be able to spend the extra money, but it's bad tax policy when we're running deficit. If you lower the tax burden on a higher wage earner, the expectation is some of that money will be spent, but some of it will be saved or invested. When you increase the savings and investment rate, the mulitplier effect will turn $1 of savings into as much as $5 of increased taxable income to the economy (if you never took a macroeconomics course, I'm sure there's a decent discussion of the multiplier effect somewhere on the internet if you google it). If the gov't can get 25% of that, it takes in $1.25 for every $1 in tax reduced. Of course the reality is much more complex but that's the general idea.

The end result of all of this is that if you're committed to the idea of a tax cut (again, debatable but now a foregone conclusion), you'd better do it for everyone, including the wealthy. Otherwise all you get are higher deficits and increased borrowing costs for everyone (which will have a greater impact on the lower wage earners).

 

<div class='quotetop'>QUOTE(Amyshubby @ May 16 2006, 05:45 PM) [snapback]256508[/snapback]</div>

Not sure what your $5200 includes, but the tax credit on the Prius is certified at $3150.

Here's an example of how it's spending and who's paying for your mortgage deduction:
(For simplicity, assume a balanced government budget and the mortgage deduction is the only one allowed.)
The government needs to take in X amount of dollars in taxes for its budget.
To reach its revenue need of X dollars, it must increase taxes to cover the cost of the mortgage deduction by Y.
Now the government has X+Y dollars and everyone pays more in taxes.
Those who are doing well enough to afford a house pay less in taxes than they would have when the government only taxed enough to collect X, a net benefit to them.
Those who are too poor to afford a house pay more in taxes than they would have when the government only taxed enough to collect X, a net cost to them.
The bottom line analysis shows that the mortgage deduction taxes the least well off to the benefit of those better off.

Now how this looks just like spending (without a mortgage deduction) on the bottom line:
The government needs to take in X amount of dollars in taxes for its budget.
To fund a spending program to give money to homeowners, taxes need to be increased by Y.
The government sends a check to each homeowner in proportion to their mortgage interest.
Those who are doing well enough to afford a house pay more in taxes but receive a check which more than covers their increased taxes, a net benefit to them.
Those who are too poor to afford a house pay more in taxes than they would have when the government only taxed enough to collect X, a net cost to them.

On the bottom line, both these scenarios are equivalent, the mortgage deduction has the same result as the incentive program (spending).
Those benefiting from the program are funded by those that do not.


<div class='quotetop'>QUOTE(Redblue88 @ May 17 2006, 08:54 AM) [snapback]256783[/snapback]</div>

I was only addressing that section of the change to the AMT law which allowed non-refundable credits.
This change does not benefit taxpayers across-the-board, only the weathiest segment of taxpayers.
I don't consider changes which only benefit the wealthy to be tax reform.

 

<div class='quotetop'>QUOTE(Kiloran @ May 17 2006, 09:17 AM) [snapback]256794[/snapback]</div>

It's arguments like these which drive the center/left (like me) away from the Democratic Party, allowing the right wing to control the government even though they are a minority of the country.

You missed the whole point of my post and totally ignored the post by cwerdna, who makes the excellent point that the definition of "wealthy" varies greatly from region to region and our tax policy doesn't address this at all. This isn't tax reform, it's a tax reduction. To reduce only taxes for lower wage earners is bad tax policy and ultimately costs them more because of higher deficits. There's no such thing as "an across the board" benefit other than a reduction in tax rates. But even if you reduce everyone's tax rate by 1% (including reducing the AMT from 28% to 27%), the wealthiest will still end up saving the most money since 1% of a lot is greater than 1% of a little. Since a tax cut that favors the rich is a bad idea, you're right back where you started from.

There's very little about the US tax structure that makes any real sense, but if you're going to tinker with it, you should at least do it in such a way that you get the desired effect you're aiming for. Nothing in this tax bill should be considered "tax reform". It's a tax cut, pure and simple. You can debate all you want whether a tax cut is a good idea (it's probably not), but if you're going to do it at all, at least do it right.

 

<div class='quotetop'>QUOTE(Redblue88 @ May 17 2006, 09:42 AM) [snapback]256812[/snapback]</div>

I'm just trying to keep it simple and on topic.
The the change to allow non-refundable credits under AMT benefits only the wealthiest (per your post, not necessarily "wealthy") segement of taxpayers.

If your point is that reducing taxes on the wealthy results in benefits trickling down to the rest, that's OK but that's not what I'm talking about.

For the record, I have not identified myself as being affiliated with any particular party.

 

<div class='quotetop'>QUOTE(Redblue88 @ May 17 2006, 06:42 AM) [snapback]256812[/snapback]</div>

Bravo! May there be more fiscally responsible Democrats in our lifetime.

a 200K AGI in California isn't wealth, if we define wealth as "not having to worry about money". I know plenty of young folks trying to buy a home and start a family here. They have *great* educations and inspirational hopes. They are double-income kids, with 200K in combined salaries, and still struggling to put together a down payment. I don't want their jobs moving offshore.

Folks that have AGIs of 150 - 350K get hit with AMT. The very wealthy (say millions in AGI), are largely unaffected by AMT (as a percentage - tax liability / unadjusted gross income). I'm approximating these numbers, but its a fair recollection from discussing them with my accountant.

It's good, sometimes, for the government to step in with some 'social engineering' tax policy. If we're all incentivized equally to buy a Prius, save for college, set aside money for retirement, that's great. I don't see any reason why someone making 40K should be more incentivized than I to buy a hybrid. I don't really want government doing my thinking for me, but some of this is just setting things right. The true costs to the environment, US economic stability, energy costs need to be reflected somehow in our purchases. The credit does this, imo, a bit.

 

<div class='quotetop'>QUOTE(monkeypox @ May 16 2006, 03:13 PM) [snapback]256527[/snapback]</div>

Probably. Most taxpayers would get some sort of benefit from the tax credit. You'll have to consult your tax advisor about your specific situation. It's expected that a buyer of a new Prius from January 1 through September 30, 2006, will be able to claim a federal income tax credit of $3150. From October 1, 2006 through March 31, 2007 the credit available for a 2006 Prius would be half of that amount.

<div class='quotetop'>QUOTE(Amyshubby @ May 16 2006, 12:21 PM) [snapback]256423[/snapback]</div>

OK, I'll bite. How do you figure $5200? The amount of the federal tax credit for one car is $3150. (Maybe a state tax credit?)

 

<div class='quotetop'>QUOTE(Kiloran @ May 17 2006, 09:58 AM) [snapback]256824[/snapback]</div>

<div class='quotetop'>QUOTE(Prizzle) [snapback]256976[/snapback]</div>

What's not to understand?
The change affects (in a very positive way) only those subject to AMT; by definition, the wealthiest group of tax payers.

The AMT was established specifically to disallow most deductions and non-refundable credits so this change undermines rather than reforms the AMT.

 

OK, I have to add my two cents. Most of you people have no idea what the AMT is and how it can affect the middle class. Firstly even if you make a gross income of 100,000 (hardly wealthy in most parts of the country and certainly not on the coasts) you can get hit with AMT if you have enough tax preference items. In the governments infinite wisdom, deductible taxes (ie. - State and Local as well as real estate taxes) are tax preference items. How in the world this does not qualify as double taxation (remember the Boston tea party) is beyond me. The more taxes you pay to local and State jurisdictions the more Federal taxes you have to pay via the AMT. In any event, this hardly only affects the RICH. Admittedly it has to affect the higher income people in the country, but the days of it only affecting the rich are long gone. It affects the MIDDLE (not even upper middle) class in high tax jurisdictions all over the country to the tune of approx. 16 Million people.

In any event luckily I was able to get the tax deduction on my 2005 as I would have gotten nothing on a 2006 and I hardly qualify as rich in any educated Americans book.

 

<div class='quotetop'>QUOTE(highroute @ May 17 2006, 01:50 PM) [snapback]256983[/snapback]</div>

Absolutely! $3150 Federal Tax credit
$2000 NY State Tax Credit.

$5150 total tax credit (wiped out if I was subject to the AMT).

 

<div class='quotetop'>QUOTE(idaten @ May 17 2006, 10:10 AM) [snapback]256837[/snapback]</div>

And may that endangered species, the fiscally responsible Republican, make a comeback in our lifetime.

 

<div class='quotetop'>QUOTE(Amyshubby @ May 17 2006, 02:06 PM) [snapback]256999[/snapback]</div>

NY has an AMT too?
How would AMT affect the NY credit?

 

<div class='quotetop'>QUOTE(Redblue88 @ May 17 2006, 09:42 AM) [snapback]256812[/snapback]</div>

I totally agree. The term "wealthy" is so subjective. I don't consider myself wealthy, but if I lived in other parts of the country and had the same income things would be different (of course, if I lived in other parts of the country I would not have the same income).

The problem isn't income. It's income minus payments on a nice house, two cars, saving for two kids college, and putting money away for retirement. After looking at all the expenses, having a change in a rule that would stop me from taking about 7,500 in credits and another 5k in deductions would be pretty rough.

 

<div class='quotetop'>QUOTE(Kiloran @ May 17 2006, 02:14 PM) [snapback]257006[/snapback]</div>

I did some checking and I don't think NY has enacted the proposed credit to date.