Mar
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Alternative Minimum Tax Issue
March 26, 2007 | 1 Comment
The middle class families are now complaining about the Alternative Minimum Tax. They are complaining that soon, even families earning $75,000/year will be hit by it. I do complaint about the unfair tax, and I consider myself middle class. However, I have to say this is a case where the middle class is a victim of their own ignorant creation. See, some people in the so called “middle class” keep arguing that the “rich” should pay the bulk of the cost of supporting this great nation. (In a different article, they already do!) The problem is that the Alternative Minimum Tax catched up with the people who asked the upper class to pay and now they don’t like it.
There are different problematic issues in the popular way of thinking:
- How to define “middle class”. According to the US Census Bureau the median family income for a family of four was $53,690 in 2005. That number already makes the family earning $75,000 a higher earner than the median family.
- Inflation doesn’t equal progress. Many people say that fixing the Alternative Minimum Tax requires indexing it to inflation. I think that would help reduce its effects on the middle class, but it would not eliminate them. Middle Class America today enjoys a lot more luxuries than Middle Class America 10, or 20, or 50 years ago. People eat in restaurants a lot more, they shop many more items, they vacation better. Being an average guy now is a lot more fun, and a lot more expensive than it used to be. Earnings/income/total compensation may have increased faster than inflation as well.
- The middle class likes deductions. The middle class complaints about the rich making deductions for excessive secondary mortgages, and huge real estate tax bills. They did complained that the upper classed got a tax deduction just for living in luxury mansions and for putting all of their luxury purchases in a home equity line. The problem is that the middle class is starting to buy McMansions (people like to live in bigger and nicer homes now) and living in luxury, and they start to get hit with the AMT that prevented rich people from taking those excessive deductions for their luxury.
I am of the opinion that the best way to make a tax system fair is to eliminate the Alternative Minimum Tax and the deductions that it tries to compensate for, which would be a way of making a revenue neutral change: maybe even a government revenue positive change that may balance the budget a bit. Otherwise, eliminating the Alternative Minimum Tax in a responsible way would mean that the government would have to recover the money in another way: increasing taxation to some people. I am sure the so called “middle class” will say that it should be increased on the top tax brackets: but sooner or latter they will fall into their own trap again, as inflation will not out pace progress.
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