December 12, 2007

SNOWBALLING TAX TROUBLES

By Senator Mike Crapo

Procrastination is rarely a good thing. It's especially troublesome when it's the U.S. Congress and the Alternative Minimum Tax (AMT). Most people now know the history: The AMT was an income tax formula passed in the 1960s to address the problem of a small percentage of high income taxpayers who were legally avoiding paying any income taxes.  Congress has had numerous opportunities to index the AMT to inflation: a major reform effort in 1993 was rebuffed by the majority; and, in the late 1990s, Congress passed a repeal that was subsequently vetoed by President Clinton. And indexing isn't the only trouble with the AMT: deductions it disallows trigger enormous and disproportionate tax burdens for families that own homes and have children. Today, the AMT still hasn't been indexed for inflation and important deductions for middle income families are still disallowed-as a result in 2005, 9,798 Idaho families and individuals paid the tax. While the patch the Senate passed will help 89,000 Idaho families avoid the tax for 2007 without raising taxes, it hasn't passed the House and, as of this writing, the outlook is questionable.   

 

This temporary fix, like those in recent years, doesn't begin to address the shameful procrastination of Congress in fixing the AMT. I wrote in 2005, 2006 and earlier this year about snowballing budget implications of this onerous, unfair tax. I have consistently supported legislation to permanently repeal the AMT because if we don't repeal it, we'll end up with a budget nightmare. With yet another temporary fix in the works, the nightmare is upon us. Not only do we face problems with the 2007 filing season, proposals being floated to compensate for the loss in revenue paint a frightening picture about a collective future tax burden. 

 

This year, Congress's delay has caused considerable concern in the IRS, required by law to issue forms by a certain date. It will likely fail to meet that deadline because Congress has dragged its feet. The IRS Oversight Board has already notified Congress that, if the filing season starts just two weeks late, on January 28, 6.7 million tax returns and $17 billion in refunds could very well be delayed. If more filers choose or are forced to file on paper rather than electronically, processing costs will increase, errors are more likely, and refunds will take longer to process. In short, if updated tax forms are issued later than mid-January, the statutory deadline for the IRS, filing taxes for 2007 could prove a disaster for families and the government. 

 

Consequences of fixing the AMT are becoming increasingly expensive. Proposals being discussed that aim to adhere to "paygo" rules are simply unacceptable. The concept of paygo itself is misleading: it doesn't apply to domestic discretionary spending and doesn't restrict spending increases for entitlement programs such as Medicaid and Medicare. Paygo does restrict Congress's ability to cut taxes; in fact, it raises taxes. Current paygo proposals for the AMT fix would require $50 billion in new taxes this year, $80 billion in 2009 and $850 billion over the next decade, all supposedly designed to "offset" revenue that Congress had no intention of collecting in the first place. And, if no AMT fix is enacted, middle income tax liability will increase by approximately $2,000 for millions of taxpayers subject to the AMT this year. 

 

It's time to stop stalling. Congress owes the taxpayers a responsible, affordable and long-overdue solution to the AMT problem. I will continue to support such a solution, one that does not unfairly burden or penalize taxpayers for Congress's lack of action or results over the years.    

 

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