April 30, 2008

AMT AND OTHER TAX CALAMITIES

By Senator Mike Crapo

This year, April 20 marked the day that the average Idahoan had worked long enough to pay their federal, state and local taxes for the year. That's more than three and a half months just to pay your entire tax bill; 74 of those days were spent working to pay federal taxes alone. Add to that more than a day spent compiling information and hundreds of dollars to complete the filing process. For reference, the instructions for IRS Form 1040 have grown from four pages in 1945 to 155 pages last year. No wonder it took Congress 841 pages to fully explain tax legislation it enacted in the 2006-2007 session. Excessive tax rates and increasingly complex tax laws levy an unreasonable time and financial burden on American taxpayers.

This past year, Congress complicated things further by not enacting a temporary Alternative Minimum Tax (AMT) patch until December, causing a delay in the refund process as IRS computer systems made the necessary adjustments. To that end, I have again co-sponsored legislation to permanently repeal the AMT. Every year Congress doesn't act to make a permanent change to the AMT, we pass an even greater burden on to future taxpayers. However, considering the historic difficulty in passing a full repeal, I also co-sponsored the Alternative Minimum Tax and Extenders Tax Relief Act of 2008 which provides a one-year patch to the AMT and extends important energy tax relief and incentives for teachers, veterans, small businesses and others. These provisions have expired or will in the near future. The following tax provisions expired at the end of the 2007 tax year:

- The research and development tax credit;
- The tax deduction for teachers who purchase classroom supplies out of their own pockets;
- The qualified tuition deduction for students;
- The accelerated depreciation for business property on Indian reservations;
- Provisions providing for mortgage bonds for veterans and penalty-free IRA withdrawals for reservists.

The legislation would extend these and other provisions for two years. Concerning the AMT, congressional leadership waited until the last minute in 2007 to pass legislation to prevent the AMT from hitting the middle class. The AMT and Extenders Tax Relief Act calls for action now, rather than waiting until it costs taxpayers in terms of receiving timely refunds for the 2008 tax year.
What the legislation does not do is enact billions of dollars of tax increases to offset the extension of these provisions. It's not good policy to enact permanent tax increases to offset the temporary extension of current tax law.

At the end of April, I joined 40 of my colleagues in a letter asking Senate Finance Committee Chairman Max Baucus (D-Montana) to immediately consider this critical tax legislation. Congress must act aggressively to prevent unwarranted and unintended tax increases for tens of thousands of Idahoans. And, while some argue that the federal government will lose tax revenue if the AMT is eliminated, it should be remembered that the AMT was never intended to affect the middle class. Congress owes it to taxpayers to ensure that taxes levied are appropriate and fair. The AMT no longer fits that description; instead, it's an onerous, outdated relic that must be retired.

The threat of higher taxes for middle income taxpayers is looming ever larger. If we don't take action now, the effects of what will be a significant tax increase in a few short years will hit many families very hard, and the cost to fix it, beyond imagining.

WORD COUNT: 581