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Monday, September 10, 2012

D.C. Finalizing Plan for Assault on Metro NYC

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Bloomberg has a story today that has special meaning for me (Link):

 

 

Background

 

- The USA has a tax that very few pay. It is called the AMT (Alternative Minimum Tax).

 

- AMT became law in 1969 when it was (shockingly) revealed that (get this):

 

155 people earned more than $200,000 and legally didn’t pay any taxes.

What is it today? 15Mn?

 

- AMT (functionally) eliminates most tax deductions (the mortgage deduction is excluded).

 

- AMT is not linked to inflation. As a result, the threshold for being subject to this tax has fallen every year.

 

- If applied to all taxpayer today, the AMT would clobber the middle class. It would change the way charities and churches are funded. It would discourage people from having children. It would discourage home ownership. It would crush people who live in states where there is an income tax.

 

-Congress is well aware of the problems with AMT. Every year for the last ten they have rolled over a “patch”. The yearly exemption reads (sort of):

 

If you didn’t pay AMT last year, you don’t have to pay this year either! Vote for us early and often!

 

The language from Congress could also be read:

 

If you were unlucky enough to have been socked with AMT last year, we’re going to stick it to you again. Sucker!

 

Note: I’m one of the suckers. I’ve been paying this for the last 15 years. It has added up to big bucks.

 

Consider the Fiscal Cliff as a Wordle:

 

 

AMT sticks out. It is the basis upon which some compromise could be reached to avoid the most significant consequences of falling off of that cliff. A few examples of why AMT could become negotiating bait.

 

-If applied as the law is now written, AMT would raise a ton of revenue ($1Trillion++ over ten years). But politicians could say that “they” did not “raise” taxes, or create “new” taxes.

 

-The cost of AMT rises with income. It is a “progressive” tax.  Democrats like that.

 

-Republicans want to broaden the base. AMT accomplishes that as well.

 

-Everyone wants to eliminate deductions (a stealth tax increase). AMT most certainly accomplishes that.

 

-AMT minimizes petty fraud of the IRS.

 

Note: How many people create an extra thousand or two of deductions out of thin air every year? Answer: Many. The IRS has no resources to find out. But with AMT, there are no deductions at all. Problem solved.

 

So who is going to get hit with AMT? A lot of folks is the answer. In 2010 only 4.4 Mn souls got hit with AMT. If Congress does not vote on another patch, that number will jump to 33Mn in 2013 (750% increase!).

 

Bye bye child deduction. You can’t deduct those charitable contribution you make. But by far the worst hit comes from the loss of deductions for local property taxes and income taxes paid to the state. The question of who will get hit the worst narrows down to the states that have high income taxes and also ridiculously high property taxes.  Numbers 1, 2 and 3 on D.C.’s target list:

 

New York

Connecticut

New Jersey

 

The Big Apple is in the middle, and will suffer the most. Not only do NYers pay their state 8%, but they have to kick in another 2% for the privilege of living in town. Very big money is involved. All of these deductions could be lost on New Year’s Eve. Ten million people in Metro NY could get hit. It would be like Congress dropping stink bombs on Times Square.

Note. I absolutely promise that you come to hate the AMT. It will cost you, but worse, it will influence your decisions as to where you live, how much you give, how you invest, whether you should have a child and a whole bunch of other things. Oh, and you can forget about inventing those charitable expenses every year (and sweating an audit).

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Comments

  1. Jim,MtnView,Ca,USA says:

    And barely ANY of those *ssholes will consider reducing government spending. Grrr.

    • Apparently, you don’t have children.

      Clearly, you don’t understand what it means to have and raise children.

      How else do you figure you will make-up for the missing Social Security payouts.

      Dude, it’s called — live off your children!

  2. And, of course, it penalizes successful productive people ion order to continue givng ‘free stuff’ (food stamps, health care, housing subsidies) to thoue who pay nothing already.

    AMT is a tax on those stupid enough to actually work , save amd invest. WE must punish that poor behavior so as to extinquish it.

  3. Right on the mark! Nothing, and I mean nothing, galls me more than the AMT.

  4. A lot of people will still move to NYC: It’s already expensive, so whats a little more expensive. The rich for the most part will still stay and flock to the city–still enough disposable income to enjoy the cultural pleasures, and young 20 somethings with ambition will still flock there to pursue their dreams in show biz, fashion, and finance. But I believe you will see more working class people leave, not many–too many family roots, but some will leave.

  5. California doesn’t make that list?

    • California property tax is limited by Proposition 13 (Howard Jarvis in the 70s, remember?). That hasn’t stopped the Dems in our state Assembly from chasing producers out of the state in a million other ways. Also, they continually caterwaul to whomever will listen that we can solve all our state budget problems by revoking Prop 13…as if they won’t actually increase spending if that ever happens.

  6. As usual, we (the middle class) fell for another Progressive “lynch the rich” scheme, and in the end we have screwed OURSELVES. It was only obvious when AMT was instituted that it would come home to roost on US.

    My CPA pointed it out when it first came in.

    Poetic justice. We deserve it. Same goes for the chain letter called “Social Security”…

  7. The AMT is nothing more than another method for the federal government to destroy the middle class in its never ending class warfare smoke screen. The real goal of those who support is nothing less than financial slavery, the abolishment of our rights, the destruction of our constitution and our country. The a-holes who created it should have been impeached the day they voted for it.

  8. At some point we are going to reach the breaking point where the takers outnumber the makers in this country. Right now (as in 2009, latest year data is available on this from the IRS) only 13.9 million taxpayers accounted for (as in, paid) 70% of all income taxes. If we include property and other taxes (FICA etc) that figure for the 13.9 million taxpayers increases to 80%.

    Think about that for a moment. 4% of the US population (13.9mm taxpayers in IRS year 2009) paid 80% of the taxes. While about half the country pays nothing, and the lowest quntile gets net refunds.

    Unsustainability, thy name is U.S.

  9. To those who believe 50% pay no taxes: Everyone with wages pays FICA. Everyone with wages pays Medicare/Medicaid. Everyone pays sales tax. Everyone with a car pays taxes or registration. Everyone with a house pays property tax. So nearly everybody pays something.

    • The data you are complaining about refers to INCOME tax, not all taxes, and is clearly reported as such in the media. You attempt to cloud the issue. It is not fair that I pay income tax on my income and someone else who has an income pays nothing. If we must have an income tax, then we should all pay no more than 8-10%, or total of 20% for all taxes from everyone, fed, state, and local. Progressive taxes are simply a money grab by the majority from the minority, and is a great way to buy votes. There is nothing “fair” about them.

  10. $175k for individuals is the middle class? More like the top 5% of income earners. Nice try Bruce

    • You obviously have no clue as to what $175K is in Westchester County, NY. State Income, Property taxes and school taxes are very high. If you itemize those deductions you get some what of break. Bruce’s point is that those are no longer deductible under AMT and is why he chose NY, CT, and NJ so we get kicked in the nuts. Now $175K in North Carolina where I am originally from you can live like a king! What state do you live in?

      • Move, stop living beyond your means, keeping up with the Jones’. Part of my income is self employed, 1099. I pay a higher tax rate when SSI and Medicare is included and I’m not making $175k

  11. I hate the AMT but charitable deductions are NOT excluded. About the only deduction I get to make!

  12. Hi!, Patrons Of Bruce Krasting Et Al:

    One thing I like about this pending measure following OUR collective Novenmber ballot votes is that once it’s implemented it will totally reveal who wears the pants in this country and that sure isn’t the patriotic American middle class is it? It use to be it was the Emporer who wore no clothes but OUR reverse Robinhood society has certainly changed that conceptualization hasn’t it? The New American Economy will be freatured run by the middle class streakers wearing no pants at all all across this once Great Nation!! Nothing fits Us like the naked TRUTHS huh?

    RUSS SMITH, CALIFORNIA (One Of The Broke States)
    resmith@wcisp.com

  13. Our government is run (ruined) solely by hemphilous masses of rectile tissue.
    Let the lawyers figure that one out.

  14. Add Massachusetts to that list as well; income tax, sales tax, and high property taxes. Guess it’s time to move to NH.

  15. Bruce, here is Senator Tom Coburn (r. OK) talking about the benefits to sunset the IRS tax code.

    http://www.c-spanvideo.org/program/SDebtan

    Go to about the 38th minute to the end. Basically he states that we would benefit if deductions just went away. He compares it to the Reagan tax change in the 80′s when deductions were cut but rates were lowered. He notes it would change the discussion with the lobbyists.

    The AMT, if implemented, would in effect “sunset the tax code”. A few weeks ago you recommended a tax on capital, wouldn’t this be a better solution (admittedly harsh)?

  16. Counting up the complete and total tax burden, the US (in most places) is regressive up and down the line. The homeless actually have the highest tax burden because everything they buy (except for unprepared food) is taxed.

    The problem with the AMT is that state income& other taxes are deductible for the federal income tax. The AMT nullifies this. If the AMT is repealed, the states are free to starve the feds.

  17. All the feds have to do is…nothing, and they will realize a HUGE boost in personal income tax revenue after the end of the year.

    “Sorry, we couldn’t extend the Bush tax cuts/patch the AMT, the other side of the aisle was too intransigent.”

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