Democrats think they have the upper hand because of President Barack Obama's re-election and his threat to veto any plan that doesn't increase taxes on the rich. They will be able to blame Republican obduracy if the cliff isn't avoided, huge tax increases hit everyone and the economy falls back into recession.
However, the Republicans think that the AMT patch is a vital weapon in their negotiating arsenal, as those hit hardest by the tax would be upper-middle-class residents in Democratic strongholds — large coastal cities with high local income and property taxes.
For example, in heavily Democratic Maryland, about 6% of taxpayers owe the AMT each year. Without a patch, that number would jump to 38%.
Republicans are unlikely to agree to the AMT extension without something in return, because their view is that the Democrats will be unwilling to antagonize their core voters by letting the AMT affect more of them.
Congress typically passes a one-year patch to prevent the AMT from biting millions of middle-class taxpayers. The tax originally was aimed at high-income earners who used loopholes to avoid paying much income tax, but it wasn't indexed for inflation, and what was once a high income is now a middle-class one.
The result is that without an annual patch, more and more middle-class taxpayers will be required to pay the AMT.
If no action is taken this year, an estimated 28 million taxpayers will be subject to the tax, and they will face an average unexpected bill of $3,700 for 2012. Most haven't allowed for it in their withholding because they have never had to pay it. BUSH-ERA TAX CUTS
By contrast, if the George W. Bush-era tax cuts are repealed, the higher taxes won't be due until next year's filing season, and withholding could be raised to pay it.
If the Republicans continue to refuse to let income tax rates rise now for high-income taxpayers, Democrats could let the country go over the fiscal cliff as they have threatened. They would allow increases for all taxpayers and then restore lower rates for those earning less than $200,000 a year in the next session of Congress, when they will have more votes.
However, the Internal Revenue Service has warned that without an AMT patch, the 2012 filing season will be a mess. That's partly because the Internal Revenue Service hasn't programmed its computers to allow for the full AMT.
That would have to be done, and tax forms would have to be reprinted. At the very least, refunds probably would be delayed for months — weakening the economy.
Even if the new Congress were to pass a patch retroactively in the first session after the New Year, a period of uncertainty would sap economic vitality.
It is unacceptable that millions of people should have no clear idea of their income tax liabilities so late in the year, and it is another reason that the income tax code must be revised and simplified. Year-by-year AMT patches can't continue.
Tax increases (and shutting down defense contractors) are the best weapon that the R-House has because the Senate Dems are more beholden to the wealthy special interests then anyone else. Tax increases will not help the economy but probably won’t hurt much in the short run.
When the AMT is not adjusted, it will apply to anyone making over $45k per year.
Whew!
Ya scared me there!!
I read it as ATM!!!
Isn’t this the general idea? To upset and destabilize the middle class and threaten those who would aspire to greater wealth and economic security, all in the name of fairness and perpetual Democrat domination of elected office?
Most people, especially the ones with their head up their a$$ who voted for 0, don’t know what the AMT is. Too bad it couldn’t apply only to 0 voters.
There are going to be some pissed off liberals if their refunds are delayed. They don’t even know it’s a refund. They think the government is giving them money.
But, they shouldn’t have to worry. The republicans will cave. And by the way, a tax increase would kill me. I don’t make enough as it is.